Shining a Light on Market Data Costs

But as much heat as there is around this debate, there is remarkably little light in the form of data about rising data costs. Throwing more light on this issue is one good way to make progress on resolving it. {IMGCAP(1)]

The positions on each side of the debate are well-established. The industry complains about the sharply rising costs of data (particularly proprietary feeds), as well as the cost of connecting to exchange systems directly. Fee increases are routinely approved by the SEC on an “immediately effective” basis, and there seems to be no effective ability to challenge them.

For their part, the exchanges argue that the industry exaggerates the extent of the fee hikes, they are needed because it takes money to operate the data centers, and anyway, the pricing of their data products and access charges is constrained by competition.

IEX is a different kind of exchange that does not charge for market data (or access), and we think the justifications of the incumbent exchanges are obviously self-serving and frankly not credible. For one thing, an argument that competition constrains price increases because, for example, you could choose to run a trading business by receiving the securities information processor (SIP) data feeds or exchange alternatives from some remote location is an insult to the intelligence of anyone who is in that business.

In any event, it is hard to make headway on this issue as long as there is so little objective information that could be used to challenge arguments on either side. Consider this: the only available data consists of whatever the exchange holding companies choose to disclose in their financial filings or other public documents, and those are opaque. They variously lump together data and connectivity revenue, or they combine revenue from different geographies and businesses in a single number. What the disclosures do clearly show is the increasing reliance of exchange companies on market data and related revenues. For example, in one report, NYSE’s parent ICE discloses “Data Services Revenue” for 2016 of nearly $2 billion (including acquisitions), compared to $116 million in 2010. And there is no complete public data about the revenue received from the public consolidated data SIPs, even though that data is provided under national market system plans with the thin pretense that they are operated like a public utility. In fact, the exchanges that dominate the governance of the SIPs are much more invested in the sale of proprietary, rather than public, data, and there is no effort to hide or avoid the apparent conflicts of interest.

For more information on related topics, visit the following channels:

• Exchanges and ECNs
• Technology
• Insights/Viewpoints