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Consolidated Market Data Feeds Gain Traction in Algo Trading and Fixed Income

Traders Magazine Online News, January 17, 2019

Ivy Schmerken

Broker dealers and high-frequency trading firms have complained about U.S. stock exchanges charging high fees for direct data feeds, accusing the exchanges of having a monopoly and demanding transparency into their costs.

Brokers and electronic market makers argue they are forced to buy the fastest and most detailed proprietary data feeds to compete and/or to provide best execution to retail and institutional clients.

Exchanges claim that brokers have alternatives, such as the securities information processor known as the SIP, an aggregated data feed mandated by Congress in 1975, which shows the best bids and offers and last trades and calculates the national best bid and offer (NBBO).

But many professional traders and algorithmic investors need more speed and detail than the top of book prices in the SIP offers.

The debate over the direct feeds vs. SIP has been going on for decades and reached a zenith in October when the Securities & Exchange Commission held public market data hearings after the SEC rejected price increases for two market data products from NYSE and Nasdaq, reported The Wall Street Journal in Wall Street Fractures Over Stock Exchanges’ Data Sales.

Amid all of the fire and fury of this battle, there are signs that buy- and sell-side firms have shifted some of their execution needs for data over to consolidated market data feeds.

The consolidated market data field pulled in over $1.4 billion in revenues, an increase of 17% from two years ago, according to research by Greenwich Associates. More than 75% of those revenues flow to the three largest vendors – Refinitiv, Bloomberg and ICE Data Services.  Revenues include real-time market data across all asset classes, including the SIP for U.S. stocks, international exchanges, fixed income, foreign exchange, and end-of-day reference prices.

By comparison, the combined stock market revenues from ICE, Nasdaq and CBOE were around $560 million in 2017, reported The Wall Street Journal on Oct. 25, but this does not include connection fees, port charges and other fees that amplify the cost to market participants.

However, on Jan. 2, Bloomberg reported a more comprehensive figure for exchange market data revenues that presumably includes futures and options. “Data collected by exchanges totaled $2.2 billion in 2017, up from $1.6 billion in 2014,” reported Bloomberg citing the Committee on Capital Markets and public disclosures.

Despite competition from direct data feeds and growing concerns about costs, the consolidated market data feed business is thriving, wrote Greenwich in September when it announced a study of 201 market data professionals and users globally.

While consolidated feeds are mainly displayed on market data terminals, client web sites, and order management and execution management systems (OMS/EMS), they also play a role in “non-displayed” machine-driven activities, such as algorithmic trading, noted the research firm.

Consolidated Feeds Expand into Algo Trading

More than 80% of surveyed respondents use consolidated data for market data terminal desktop applications, 49% use it for OMS/EMS applications, 46% for algorithmic trading applications and 38% for analytical engines, according to the Greenwich study.

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