For as long as there have been markets, there’s been a demand for information about them. In the US, the rules that govern equity market data were built in the 1970s, and it’s time for an upgrade to them. Not only is it long overdue, but doing so will empower modern technology to provide market participants the information they need while minimizing risks and abuses.
But before we focus on where we need to go, let’s take a look at where we are and how we got here.
In the early 1970s, the Securities and Exchange Commission decided that the patchwork of different exchanges providing different quote and trade information meant that market participants didn’t know where to get the best prices. It then began to adopt rules that would later become the CTA/CQ and UTP Plans, which ultimately paved the way for the introduction of the SIPs. The purpose of these “public” market data streams – both then and now – is to provide market participants with a real-time view of essential information about quotes and trades at a reasonable cost.
Through them, market participants were able to easily view the best bid and ask from each and every US equity exchange in a single, easily consumable data feed, creating a level of transparency and efficiency that was unheard of at the time (and remains the envy of other advanced markets around the world). But today – nearly 50 years after their introduction – the SIPs face major questions about their relevancy.
Simply put, the public market data streams no longer serve as intended. They are too slow (at least in relation to the proprietary data feeds provided by the exchanges). They don’t provide sufficient information to meet the needs of many investors. They are expensive, and their fee structures are extraordinarily complex. None of that’s an accident, as the exchanges generally profit handsomely from the current system.
As mandated under the first CTA Plan (and reaffirmed with the passage of Regulation NMS in the mid-2000s), the SIPs are run by the SROs, which include FINRA and the growing number of exchange operators (NYSE, Nasdaq, Cboe, IEX and now MEMX, LTSE and soon MIAX). Each of the exchanges offers their own data feeds, which compete with the SIPs. Some of these “proprietary data” feeds offer more information, faster, and for a hefty price. Further, in addition to overseeing the SIPs, NYSE and Nasdaq have business units that also serve as administrators and technology processors for the CTA/CQ and UTP SIPs, respectively.
Voting powers over the SIPs are allocated based on the number of exchange medallions held – given the nine combined markets operated by NYSE and Nasdaq, those companies have 50% of the total votes on the Operating Committees that supervise the performance of their administrator and processor businesses. A tangled web for sure.
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