IEX, the buyside-sponsored trading alternative trading venue, has filed a comment letter with the Securities and Exchange Commission against recent proposed changes to the way prices and transaction sizes are reported to the Consolidated Tape Association.
The venue’s chief market policy officer, John Ramsey, wrote that IEX believes the way the NYSE calculates or “bunches” its trades for reporting last trade information is flawed.
IEX said that NYSE’s current method of “bunching” trade size information in reporting to the CTA does not accord with commonsense understanding of key terms or with market practice elsewhere.
“First, as NYSE acknowledges, the CTA Plan requires the reporting of data on “completed transactions.” The plan does not itself define that term but in the absence of a different definition, the commonsense approach would be to consider each execution between a single seller and a single buyer as a separate transaction,” Ramsey wrote in the comment letter.
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Aso, IEX said that it was not aware of other markets that report last trade data in this way. However one interprets the last sale reporting requirement in the CTA plan, it cannot be the case that each participant is free to adopt its own interpretation. Even if one held the view that the method used by the NYSE provides a better understanding of trading activity (for the reasons described above, we think it clearly does not), there is no logical or policy reason why the method used should be different among different exchanges.
“The use of discordant methods for aggregating and reporting trade data in fact runs counter to the NMS concept of a coherent and consistently derived consolidated data stream that is available to all market participants. And the utility of unbunched trade data is obvious from the very fact that NYSE has determined to alter its proprietary data to adopt that method,” Ramsey continued.
IEX favors the reporting of trade information on an unbunched basis where all market participants can see market transparency based on all trades is the only way to go.
“Consistently reporting trades on an “unbunched” basis would provide market participants with the transparency they need to easily identify, based on price, size, and time stamp data, and circumstances where a large incoming order is able to match with multiple resting orders,” Ramsey wrote.
The converse, he said, is certainly not true when NYSE “bunches” many small individual orders into a trade that is represented as being between one buyer and one seller. Nor can the exchange claim that more accurate reporting will be unduly complicated or costly; each component trade that is bunched certainly needs to be separated for clearance and settlement and other operational purposes, and NYSE clearly is prepared to do so in configuring its proprietary data products.
Rule 603(a) requires exclusive processors, like NYSE and other exchanges that send quote and trade information to a securities information processor (“SIP”), to do so on terms that are “fair and reasonable.” The rule further requires exchanges, nationalsecurities associations, and broker-dealers that send data to a SIP or other persons to do so on terms that are “not unreasonably discriminatory.” The Commission has found that disparities in the means by which an exchange sends “core data” to a SIP compared to the distribution of data through its proprietary data feeds can violate both the “fair and reasonable” and “not unreasonably discriminatory standards” by allowing data distributed independently to be made available on a more timely basis than core data is disseminated to the SIP.
In conclusion, IEX said that the current practice NYSE employs to calculate last trade information is not in accord with the general public interest standards as enunciated in Section 6(b)(5) of the Securities Exchange Act of 1934 (the “Act”) and is not “fair and reasonable” under Rule 603(a)(1) promulgated under the Act.
“Further, we believe that a practice of reporting transaction sizes in one way to the CTA and another through NYSE’s proprietary data feed would be “unreasonably discriminatory” under Rule 603(a)(2),” the ATS concluded.
