With Market Data Fees in Focus, Industry Grapples with Appropriate Fix

Picking up on the debate that began at the SEC’s two-day Market Data roundtable in October, industry participants at the Security Trading Association of Chicago’s (STAC) 93rd Annual Mid-Winter Meeting last week were divided on the scope of the problem with market data costs and the appropriate solution.

While the issue of exchange data fees were the simmering topic throughout the conference, particularly with the announcement earlier this month of plans by nine financial institutions to launch MEMX, the discussion reached a crescendo during Wednesday afternoon’s market data panel.

“If you’re a broker who wants to be taken seriously in the execution space, the SIP is simply not adequate,” said Dash Financial Technologies’ Chief Growth Officer Glenn Lesko, a participant on the panel. “That means you need to purchase the direct feeds from the exchanges, and the costs on those are considerable.”

But Michael Blaugrund, NYSE’s Head of Transactions and another member of the panel, disagreed, noting that their subscriber data indicates that many brokers purchase only select feeds.

“While we would be happy to sell subscribers our full suite of data products from all of our markets, there are many, many brokers who take only one or two of the feeds. That would indicate to us that brokers have a choice in the matter and that it is very possible for them to serve the needs of their clients by using only the data products they feel they require,” he said.

Blaugrund added that NYSE believes that the total cost to trade on its markets — when taking into account all data, connectivity and transaction fees — is less than 7 mils per share, a number that is far lower than any point previously.

According to a November 2018 study published by analyst firm Greenwich Associates, only 2% of industry professionals said they would trade with a broker that priced solely off of the SIP, but 34% said they would if there was greater regulatory clarity that ensured best-execution requirements were being met.

“Despite escalating tensions, our study suggests a possible path forward for the exchanges, with the industry clearly identifying a role for regulators to play,” Brad Tingley, Greenwich Market Structure and Technology Analyst and co-author of the report, said at the time. “With greater clarity regarding consolidated feeds and their ability to be used to deliver best execution, we could see a truce develop. In other words, we expect to see a market where enhanced data is available for a fee, but is not required to remain competitive and in compliance.”

Tom Wilson, Head of Sales and Business Development at HPR, a provider of ultra high-performance trading technology solutions, noted that data fees are top of mind across the industry.

“The issue of market data fees is one of the biggest topics of discussion today,” he said. “Clearly, there are concerns on the part of many, evidenced by the announcement of MEMX by nine of the biggest payers of exchange data fees. But what comes next is anyone’s guess. There really doesn’t seem to be any sort of consensus forming on a path forward.”

For Dash’s Lesko, the focus on data costs alone is a case of missing the larger point. He believes Regulation NMS’s Order Protection Rule, which requires brokers to ensure they are not trading at an inferior price to one that exists on another market, is the root of much market complexity, and that transparency is the solution.

“I’ve spent a significant portion of my career working in the equities industry overseas, and I can tell you without a doubt that our markets are the envy of the world,” he said. “But Reg NMS is over 10 years old now, and many of its provisions, while well intentioned, have resulted in considerable unintended consequences given how different our markets are today than when it was written. We believe there should be a holistic review of the regulation, and if any changes are made, have them be more about adding transparency through enhancements to things like Rule 606.”