SIFMA Seeks SIP Overhaul

The Securities Industry and Financial Markets Association is seeking a sweeping overhaul in the way the Securities Information Processors, or SIPs, run by Nasdaq OMX Group and NYSE Euronext operate.

In a November letter to the Securities and Exchange Commission, the broker-dealer lobbying organization called the current operation overseing the distribution of market data outdated and in need of a revamp. The letter followed SEC demands that SIP operators establish plans of action in the event of malfunctions. The order followed an outage in August of the Nasdaq-run SIP that halted trading in Nasdaq-listed securities.

In its letter, SIFMA told the SEC that it was imperative that broker-dealers participate in the drafting of any plans and also petitioned the regulator to change the way the SIPs are governed and operate. Currently, SIP governance is controlled by the exchange operators, with broker-dealers playing only an advisory role. SIFMA maintains that arrangement is ineffectual and that broker-dealers-as well as the buyside-need to become direct representatives at SIPs with voting power.

Improving the governance of the SIPs is particularly important because of the conflicts of interest inherent in the SIP operations, Theodore Lazo, SIFMAs associate general counsel, told the SEC in the letter. SIPs are conflicted because they also offer competing proprietary market data services, SIFMA argued.

In addition to a seat at the table, SIFMA wants the SEC to require the SIPs to provide full financial disclosure, including tape revenue allocations, and to expand the number of industry players that can act as SIPs. Neither Nasdaq nor NYSE would comment.