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September 1, 2012

SEC Awards Contract to HFT Firm

By John D'Antona Jr.

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  • SEC Awards Contract to HFT Firm

As part of a two-pronged strategy to better police the equities market, the Securities and Exchange Commission has awarded a government contract to a high-frequency trading firm to provide a real-time system to track market activity for equities and options.

The other part of the regulator's strategy along with the equities and options trade data feed, is the formation of a new group, the Office of Analytics and Research.

Manoj Narang, TradeWorx

Tradeworx of Red Bank, N.J. was awarded a contract in mid-summer to provide the SEC with a real-time data service to provide trading and quoting information. The data will better help the SEC to surveil and analyze markets. Manoj Narang, the chief executive officer of Tradeworx, has been one of HFT's staunchest defenders, but sees the upside in sharing his proprietary data with the government.

Narang said he is making his technology available to the regulators so as to give them equal footing, data-wise, with the traders they are trying to police.

"It's because I've long been a vocal proponent of data-driven decision-making when it comes to the market's rules and regulations, but that presupposes that policy-makers have the data and tools they need to engage in such an activity," Narang wrote in an email. "So we decided to put our money where our mouth is and offer up our data and tools to the regulators, so that they would be endowed with the ability to see the market with the same level of detail and insight as the top-tier market participants they are supposed to be policing."

The SEC currently does not have real-time data feeds at the moment. The cost will be $2.5 million a year for the first year, according to the agency. A formal request for proposal for a real-time data provider was issued by the SEC in November 2011 and Tradeworx won the contract seven months later.

The SEC voted on July 11 and passed a rule requiring the exchanges and a broker oversight group to build a single trade-data reporting system to monitor and analyze activity across U.S. equity and options markets. That, however, will not be in real time, as the SEC commissioners bowed to industry pressure.

However, the agreement with Tradeworx addresses the consolidated audit trail's shortcomings, as the SEC will still have access to real-time trade data. Data will be sourced from all U.S. stock exchanges and the Options Price Reporting Authority.

Gregg Berman, senior advisor to the director of the Division of Trading and Markets at the SEC, said in an interview that the new system will serve as a complement to CAT and provide the SEC with the same speed, ease and reliability of data collection and analysis that is available to sophisticated market participants. Also, the regulator will be able to quickly collect, store, aggregate, monitor, query and analyze equity and options data.