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FLASHBACK FRIDAY: Differences in Data Delivery Are Fair

Flashback Friday sponsored by Instinet

Traders Magazine Online News, November 2, 2018

John D'Antona Jr. and Terry Flanagan

It’s amazing what just a few years difference can make.

Back in 2012, the equities market was debating amongst itself just what was fair when it came to data feeds, delivery, the Securities Information Processors (SIPs) and the exchanges who ran them. Back then, market data feed speed wasn’t as crucial to as many participants as it is today. The exchanges back then offered the SIP to everyone and it was adequate for many. For those who required data faster, proprietary data feeds were available at nominal costs – which too were justified at that time.

Fast forward to 2018. The debate on data delivery and cost have escalated. The brokers and buy-side have claimed the SIPs are outdated and in need of modernization. Many said they are forced to purchase higher tier data from the exchanges in order to stay competitive. And the exchanges, aware of this, keep charging ever increasing amounts for the upgraded data feeds.

The exchanges, whose business mode has moved from making money on trading to charging for data and other related technology, are accused of charging too much for the services they offer. In a recent Traders Magazine poll, 89% percent of those surveyed said the exchanges were not justified in charging what they do for data when compare to the costs associated with generating the data. The exchanges contend that they face increasing costs in generating the ever-increasing appetite for more data that can be delivered more quickly.

So, what’s to be done? Who is right? Who is wrong? Who gets hurt? Who benefits? How did the market get here?

The Securities and Exchange Commission has recently stepped into the heated debate and held two days of meetings and panels where the buy- and sell-side, along with the exchanges and others to take a closer look into data delivery, generation and costs. This followed the regulator’s decision to set aside NYSE’s and Nasdaq’s depth-of-book fees as of October 16.

The fees falling under the judgment are those fee that Nasdaq and NYSE Arca put in place on September 15, 2010, and November 9, 2010, respectively.

The Commission’s decision rests on the exchange operators failure to meet their burden to demonstrate that the fees “are fair and reasonable and not unreasonably discriminatory,” wrote the authors of the decision. “We do not, by our findings here, conclude that the fees are not fair and reasonable. Rather, the factual record submitted and the theories based on the record part forward by the exchanges are insufficient to support a finding that the fees at issue meet the statutory test.”

The decision marks a change from the 2016 decision by Law Judge Brenda Murray, who rule that there was a competitive environment between Nasdaq and NYSE’s depth-of-book offerings and that SIFMA failure to prove that depth-of-book data is a “need” rather than a “want.”

“Today we also remanded hundreds of similar requests seeking to increase the price of information necessary to participate in America’s stock markets,” noted SEC Commissioner Robert Jackson in a prepared statement. “The exchanges will now have the opportunity to review those requests under the standards articulated in today’s landmark opinion—which requires exchanges to be prepared to show us that any price increases are justified by competition rather than the exchanges’ market power.”

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