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IEX Discloses Data Costs it Incurs

Traders Magazine Online News, January 29, 2019

John D'Antona Jr

One exchange is moving one step closer to cost transparency.

Investors Exchange – IEX – has published a new report today publicly disclosing the costs it incurs to provide prop market data and connectivity. The move comes amid market debate between all parties – the buy-side, sell-side and exchanges – concerning prices the exchanges charge and want to charge for their trading feeds and hookups. This has been a market hot topic for months, especially in light of several recent conferences and roundtables hosted by the Securities and Exchange Commission last year.

In October 2018, the SEC convened a two-day roundtable to discuss market data and connectivity provided by exchanges, where both the regulators and industry participants demanded greater transparency from exchanges on the cost to offer these products. Without knowing the costs, how can regulators and the industry ever determine whether the prices that exchanges charge are “fair, reasonable, and competitive,” as required by the Securities Exchange Act of 1934?

Among IEX’s findings/disclosures:

  • For proprietary depth of book market data products, other exchanges charge fees 900 - 1,800% above IEX's costs to offer a comparable product.
  • For physical connectivity to the exchange, other exchanges charge fees 2,000 - 4,200% above IEX's costs to offer comparable services.
  • For virtual sessions needed to trade (i.e., order entry and drop copy sessions), other exchanges charge fees 500 - 1,800% above IEX's costs to offer comparable services.

Here is a link to the paper itself:  

IEX wrote in the paper, “The size of these markups suggest the entrenched exchanges engage in monopolistic pricing. There are no viable alternatives to these products nor is there healthy competition that would otherwise drive prices lower, validating the industry’s opposition to entrenched exchange pricing.”

IEX continued to note that for over a decade, entrenched exchanges have consistently hiked prices for market data and connectivity despite growing protests, and some lawsuits, from investors, brokers, and market makers. Revenues from market data alone have grown over 40% since 2014, which, when combined with the business of selling connectivity, generate billions in revenue for the entrenched exchanges.1 These monopolistic profits for exchanges come at the expense of competition among smaller brokers and market makers. FINRA reports that the number of brokers has fallen 24% since 2008. The capital markets ecosystem depends on symbiotic relationships among companies, investors, brokers, and exchanges. By siphoning billions in excessive fees from this ecosystem, exchanges have abused their privilege and deprived all other players of valuable reinvestment to further growth and innovation.

IEX Chief Executive Officer Brad Katsuyama published comments publicly announcing the research on LinkedIn:

For more information on related topics, visit the following channels:

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