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A Quick Review of the SEC Market Data Roundtables

Traders Magazine Online News, November 2, 2018

John D'Antona Jr.

Independent brokerage and technology firm ITG recently released an overview of the recent two-day Securities and Exchange Commission roundtables on market data fees. It has shared with Traders Magazine its findings and analysis.

“October  25 and 26 the SEC hosted roundtables to discuss and debate issues related to real-time equity market data. The roundtables followed an SEC decision, in early October, in favor of SIFMA, in a long-standing lawsuit against Nasdaq and NYSE Arca. The decision held that neither market had properly demonstrated that fees filed in 2010 were fair and reasonable under the Securities Exchange Act of 1934.(1) The theme of data prices needing to be fair and reasonable underpinned the entire two days.

In term of the themes discussed, and the key arguments laid out:


The three big exchange groups all had very similar talking points.

1. The most-stated arguments were that the top 5 bulge bracket firms make billions of dollars from equity trading, and market data fees were a tiny fraction and thus not worth discussing.

2. They all stated that retail clients have never had it better, with near zero commissions and tight spreads, and suggested that any change to the market data regime might damage that.

3. They also kept reiterating that the most expensive proprietary feeds aren’t mandated by the SEC, and thus if brokers think they are too expensive, they just shouldn’t buy them. The exchanges went so far as to ask the SEC to rule on whether such feeds are required for best execution.

The buy side, sell side, prop guys and IEX argued against most or all of this. Among their main arguments:

1. Market data revenues should be fair and reasonable—and not derived based on what the biggest firms can afford to pay.

2. Yes, retail clients have it great, but that has nothing to do with the conversation. One HFT firm suggested that if market data fees were more reasonable, the firm would be able to give retail clients more price improvement.

3. The proprietary feeds are not a luxury; they are a must-have. Two large buy-side firms clearly stated they would not trade with firms that relied on the SIP for order routing decisions. Beyond that, as long as the exchanges control the technology and geography of the SIP, they can assure that it is inferior to proprietary feeds—making such feeds more valuable.

In the end, the SEC needs to determine what “reasonable pricing” means: does it mean pricing needs to be determined relative to the cost of production, or should fees be based on some notion of value added to the process? Similarly, the SEC needs to weigh in on the need for proprietary feeds.

One interesting tidbit from the CBOE: according to its stats, top 10 trading firms account for roughly 50% of trading volumes. The CBOE argues that after access fee rebates and SIP rebates, those 10 players are net receivers of a check from the exchange. (It was not clear if this included connectivity fees.) This suggests that the remaining players in the market are subsidizing the top 10 trading accounts. We would suggest this further highlights the need for the transaction fee pilot.


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