Commentary

Anne Plested
Traders Magazine Online News

Bottlenecks Ahead

Anne Plested, head of Fidessa's EU Regulation Change programme, has written a short blog arguing that although we should be thankful that ESMA have taken a pragmatic approach to moving things along, more bottlenecks could appear in the future.

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May 31, 2001

Exchange Fee Scam?

By Joseph P. Kennebeck

You know what I find ironic? The Securities and Exchange Commission adopted Rules 11Ac1-5 and 11Ac1-6, requiring broker dealers to gather, massage and format data about customer trades.

Now these rules are being adopted and accepted by the SROs (NYSE, Amex and Nasdaq) as being helpful for customers. I will concede that point for the moment. However, there is a downside.

Not only do these broker dealers have to spend time, money, and manpower to gather, massage and format this data, the SROs, by adopting these rules, are forcing broker dealers to make this data publicly available.

Posting Rules

The rules, as adopted, define this as "posting on an Internet Web site that is free and readily accessible to the public, furnishing a written copy to customers on request without charge, and notifying customers at least annually in writing that a written copy will be furnished on request."

All of the cost of this is to be borne by the broker dealer.

Now here's the irony:

My company has a Bloomberg terminal for which it pays NYSE/Amex/Nasdaq exchange fees. These fees do not go to Bloomberg, they are passed through to the exchange.

My company uses ILX for which it pays (per terminal) NYSE/Amex/Nasdaq exchange fees. These fees do not go to ILX, but are passed through to the exchange.

My company uses REDI for which it pays (per terminal) NYSE/Amex/Nasdaq exchange fees. These fees do not go to REDI, but are passed through to the exchange.

Each one of these services charge 'exchange fees' of approximately $200 to $300 monthly. These fees are explicitly payment for quote and trading information. Just plain old trading-type information: last trade, bids, offers, etc.

Let me point out also that the data is identical from one vendor to another. None of this data is 'proprietary.' It is data generated by buyers and sellers coming together and trading securities.

The exchanges do not 'create' this data. As someone put it, if no one showed up to trade, what would these data feeds be worth?

Are you seeing the irony yet?

Broker dealers have to pay people to assemble, massage, and format this data under the terms of the new rules. They pay people to build a Web site, pay a Web host, pay a printing company to print the quarterly reports as required.

They pay postage to send reports to customers that request them and to inform customers of the free online data and reports available.

(Oh, and I forgot to mention that we have to pay postage on a per transaction basis as well: if a customer wants to know something on a particular piece of this data, we have to mail it to the customer).

Think about it. The SROs are allowed to charge monthly fees just to provide data that is not really their data in the first place!

These SROs, by decree, have forced the subjects they regulate to provide comprehensive and statistically formatted data on execution, trading and routing for free and eat all the costs of providing it -- while they charge monopoly fees for the most basic trading data.

Don't get me wrong, I am all for the intended purposes of the rules, to make investors better informed.

However, I just think that with the information and technology available today, turnabout should be fair play, and these 'data monopolies' should be broken. Do away with the ridiculously outdated exchange fees or allow broker dealers to charge users of this data to recoup some of what it cost them to produce it.

Why Pay?

I think in the near future, people (as well as companies) will look at the exchange fees they are paying and ask "Why? Why are we paying $300 per month, per terminal (at some firms this accounts for millions of dollars) for the same data that my brother Gilbert in Utah gets from his online broker for free? There has to be a better way for the exchanges to make money."

Is there a solution to this fee-mess anywhere? I'd tell you...but then I'd have to charge you.

Joseph P. Kennebeck is head of trading in North America at E-Global Securities Brokerage Services in San Francisco.