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November 2, 2011

Word for Word

By Peter Chapman

Also in this article

Matt Lavicka is a managing director at Goldman Sachs. He recently spoke out at the Securities Industry & Financial Markets Association's annual market structure conference about the high costs to the industry of high-frequency traders flooding the market with quote data.

Matt Lavicka

>> On the unfairness of the cost burden

There has been this faster and faster race of trying to be able to react quickly to quotes and pump more quotes into exchanges. There is no end in sight. There is a certain element in the industry that is producing a lot of messages and not necessarily bearing the costs that result from that production. There is a broader universe of market participants that must consume all these messages. That has to worry about having their feeds upgraded to support the latest bandwidth. That has to worry about latency. It's a big cost to the industry to consume these kinds of messages.


>> On a solution

We need to do something. There has to be a re-aligning of incentives and disincentives. There has to be a better throttle mechanism to deal with the ever-increasing market data message rates.


>> On the problem of private exchange feeds

The NBBO and the production of market data is supposed to be an industry utility. It is mandated by the SEC. Essentially, it is a monopoly. The industry is obliged to consume it. It has to pay whatever price is necessary to get that data. The problem has to do with the competitive nature of the exchanges. Exchanges used to be non-profits. And they were responsible for production of this data. Now they are for-profit and they have various private market data feeds. And we have this misalignment of the private market data versus the SIP data-feeds, or the NBBO. These issues will get in the way of us solving this. There needs to be the right incentives set up. It will take the SEC to make that happen.


>> On the threat to a limit up/limit down mechanism