Mike Ferguson and Mike Williams
Equity Markets Association
In this op-ed, Mike Ferguson and Mike Williams at the Equity Markets Association argue that a recent transparency initiative shows that stock market infrastructure is in good hands.
The association was founded by Intercontinental Exchange, the parent company of the New York Stock Exchange, and NASDAQ.
“Some critics have recently called into question the effectiveness of our market,” they write. “And to be sure, we are not immune to imperfections. But we are proud to be an industry that mandates specific processes for continual review, investment, and improvement.”
American investors today benefit from an efficient, well-regulated and easily accessible financial system that is both trusted and respected globally.
This means that all investors—from sophisticated financial institutions to average American workers with 401(k) accounts—can now transact in securities more easily and cheaply, using far better information, than ever before.
Some critics have recently called into question the effectiveness of our market. And to be sure, we are not immune to imperfections. But we are proud to be an industry that mandates specific processes for continual review, investment, and improvement. And we can demonstrate these investments and improvements in tangible ways.
For example, a major transparency initiative last month by a committee of U.S. stock exchanges and FINRA revealed that the public and the financial industry is paying less for up-to-the-second stock market data than they were a decade ago, even as data quality, availability, and speed have increased.
The headlines in Bloomberg News and elsewhere appropriately focused on the declining data fees, which corrects the record on claims by some Wall Street firms that market data costs are uniformly rising, or too high. Indeed, the data show that the total cost of consolidated market data distributed by the securities information processors that supply vital market information have actually decreased over the last decade when accounting for inflation.
That’s good news, but there’s more.
The Equity Markets Association, which represents two of the largest regulated exchanges, also believes the transparency initiative itself deserves more attention, as it sheds light on the critical data infrastructure that gives investors protection and confidence—at little to no cost to retail investors, and at a low cost to the securities industry.
First, a brief primer on the securities information processors. The SIPs, as they are known, provide a consolidated feed of real-time quotes from U.S. exchanges and real-time trades across all U.S. exchanges and non-exchange markets. This uniquely American service, overseen by the SEC, consolidates all quotes and trades into easily consumable data feeds, which are distributed to the investing public through brokers, the media, and resellers of financial information. Most of the general investing public has benefitted from the SIPs at no cost.
As required by SEC rule, the exchanges and FINRA operate the SIPs. Participating exchanges and FINRA are self-regulatory organizations with strict legal obligations, enforced by the SEC, to comply with SEC rules on market data dissemination, including requirements on the fair and equitable allocation of fees for this data. To meet their regulatory and compliance obligations, the exchanges and FINRA oversee the operation of the SIPs.
The consumers and re-distributors of this data, many of them representatives of securities firms, participate in the governance of the SIPs through a strong advisory committee representing the sell side and buy side communities. While we strongly believe these firms do have a critical role in governance of the SIPs, it’s important to also note that exchanges and FINRA have regulatory obligation to comply with SEC requirements regarding consolidated data. The securities firms do not.
Some securities firms desire more power in governing this critical infrastructure. Other market participants have criticized the governance structure of the SIPs, asserting that advisory committee members, notwithstanding the absence of legal obligations to comply with SEC requirements regarding consolidated market data, should have an equal vote to the exchanges and FINRA who do bear regulatory risk for the SIPs.
The Equity Markets Association welcomes heightened public discussion and awareness of the SIPs. But we think the SEC was wise in having this critical market infrastructure be run by entities that have the legal and regulatory obligations to meet the rigorous requirements under SEC rules. The broader investing public’s interest is channeled through the SEC, which oversees the SIPs, creating an important check on regulated exchanges, FINRA and non-regulated firms alike.
Critics have claimed that the exchanges have no incentive to improve or invest in the SIP, because these market feeds compete with the exchanges' proprietary data businesses. This suggestion ignores the substantial improvements the exchanges, as SIP operators, have made to the SIPs. As with all sectors that rely on information, massive advances in data technology and analytics in recent years have transformed the financial markets, sparking innovation, competition, and increasing demand for data. The SIPs—both the CTA/CQ Operating Committee and the UTP Operating Committee—have responded to this demand by increasing the speed, capacity, and resiliency of their data feeds.
When market participants sought more transparency about SIP operations, the exchanges and FINRA responded with ramped up public disclosure detailing governance meetings, performance metrics, pricing schedules, and technical specifications. Last month's transparency announcement added current and historical revenue to the mix of enhanced disclosures, which showed that overall SIP revenues have decreased over the last decade despite a massive increase in volume running through the feeds.
We are committed to pushing for continual improvements of the SIPs. They are a vital part of our markets and regulated exchanges and FINRA take their public duty seriously. But let's also acknowledge that U.S. market participants are getting a continuously more valuable product, faster, at lower cost, amid growing information flow. It’s working.