Forefront Communications

Traders Magazine: Nasdaq’s Albers Discusses the SIP

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Mark Dowd

Mark Dowd

Information is the lifeblood of markets. The consolidated market data feed and infrastructure that links U.S. securities exchanges and trading systems enables investors to trade instantaneously and execute every trade at the best price possible. Unique to the United States, this market data backbone known as the SIP (for Securities Information Processors) is operated by a group of exchanges and trading firms overseen by the Securities and Exchange Commission.

On March 1, the SIP administrators began to publicly share more information about revenues they receive from the consolidated market data feeds. These transparency measures show that the total cost of the SIP to the financial industry has largely remained flat over the last decade and has actually decreased when accounting for inflation. Indeed, fees earned by Nasdaq declined by 28.7% on average, and have trended down for other U.S. exchanges as well. Total SIP data costs have remained flat despite an enormous increase in information flowing through the system —as well as significant technology investments into the SIPs that have increased its speed, resiliency, redundancy and cyber security.

Q. What exactly is a SIP and what is the benefit for the U.S. securities markets?

A. Trading in every U.S.-traded equity—from Apple to Zillow—now takes place on 12 different regulated securities exchanges and dozens of alternative trading systems that compete for every order. To protect investors and improve market functioning, the U.S. government sought the development of a data feed that consolidates information on every stock quote and trade together in real time. The SIP is a government-mandated cooperative venture that links protected equity bid/ask quotes and trades from every registered exchange into a single, easily consumable data feed.

The SIP helps brokerage firms meet the SEC’s requirement that firms execute every trade on every stock at the best price for the investor. There are other benefits: over the past decade the SIP has delivered significant improvements in terms of the amount of volume it can handle and the speed at which information is gathered and distributed. These improvements—including significant cybersecurity and fraud-prevention investments by the exchanges—translate into higher overall market efficiency and resiliency.

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