Differences in Data Delivery Fair

You get what you pay for.

In September, the Securities and Exchange Commission fined NYSE Euronext $5 million for disseminating New York Stock Exchange market data to paying customers before it went out over the public feed. In the wake of that event, exchange executives noted that the public feed is naturally slower and that those wanting their data faster expect to pay up.

“The speed of the SIPs has increased tremendously,” Ed Provost, chief business development officer at the Chicago Board Options Exchange, said at the annual conference of the Security Traders Association in Washington. “But there’s still a difference between the direct feeds and the SIPs, and obviously, people are willing to pay for that. They think it’s worth it.”

NYSE Euronext and Nasdaq OMX Group are designated as the Securities Industry Processors, or SIPs, which aggregate all data from exchanges and disseminate it to brokers.

Most of the exchanges also offer their own data on a proprietary basis to their customers. These feeds cost more, but the data arrives sooner. The latency differential is estimated at between 500 microseconds and a millisecond.

The vast majority of broker-dealers-an estimated 80 percent, including the largest-pay for proprietary data feeds.

“A variety of firms take the direct feeds,” noted Joe Mecane, an NYSE Euronext executive vice president, at the confab. “It’s not just the proprietary [trading] firms. All the major sellside participants take the direct feeds for one purpose or another. It’s largely a matter of choice for the industry.”

Exchange executives noted that the latency differential between public and private feeds is due to the number of “hops,” or aggregation stages necessary when consolidating data for the public feed. “The processing time alone is going to add some degree of latency to the system,” said Eric Noll, a Nasdaq executive vice president in charge of transaction services.

Noll added that it is not just speed that makes the proprietary data more attractive to some players.

“The direct feeds are much richer,” he said at the STA conference. “There’s much, much more information. And it’s not just to the advantage of the prop trading firms, but to all broker-dealers who take those direct feeds. They want that richer data set.”

In any event, the 20 percent of brokerage firms not receiving the proprietary feeds are not necessarily at a disadvantage, according to one exchange exec.

“The other 20 percent may not have a need for [the proprietary feeds],” noted Gary Katz, president and chief executive of the International Securities Exchange. “They’re not running automated systems that generate orders.”

In fact, Katz said, “they may be feeding websites used by retail customers and they don’t want to pay the extra money for that sub-millisecond advantage. We are helping them by maintaining a lower cost base. It really depends on the need for the data and what it’s being used for.”


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