An Open Letter From EMA to the SEC and Stakeholders

The U.S. Securities and Exchange Commission’s Roundtable this week on Market Data and Market Access is timely and welcome. 

We can all agree that, not unexpectedly, data and technology play a bigger role in the equity markets than they did when the foundational rules of market structure were established because all systems evolve over time, and it is appropriate for the SEC to periodically consider whether public policy is as well-tuned as possible to support our flourishing capital markets and protect investors. The Equity Markets Association appreciates the Commission’s sincere consideration of stakeholder input and advice, as evidenced by this two-day public meeting. 

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Understanding the Market for U.S. Equity Market Data

Charles Jones of the Columbia Business School writes: “A stock exchange facilitates share trading, in large part by developing computer systems, rules, and processes that allow buyers and sellers to submit orders, trade with each other, and determine a market price for shares listed on those exchanges.  In the current market environment, this results in a vast amount of data, which market participants of all types rely on to make investment and trading decisions. Exchanges provide some of this market data to market participants at prices that vary depending on the type of data as well as how the data is used.”

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Retail investors get a sweet deal: The cost of a SIP of stock market data

James Angel of Georgetown University’s Department of Finance writes: “High quality data are essential for markets to function efficiently. This study describes the production and dissemination of U.S. stock market data and explores how much individual investors are paying for the data. The joint nature of the production of information along with trading, surveillance, and listing services makes it difficult to allocate the fixed costs to customer classes. Data from the competing exchanges are consolidated and distributed through entities known as Securities Information Processor (SIPs). The costs of providing this data fall mainly on the professional investors who value it the most. Professional traders pick up over 80% of the cost of the SIP data. The SIPs intentionally provide real-time data at very low cost to nonprofessional investors and delayed data for free. The inflation-adjusted price of real-time Tape C nonprofessional data has fallen 96.3% since 1987. Since 2008, inflation-adjusted SIP revenues allocated to the exchanges have fallen 23.7%. These cost reductions are one of the many contributors to the massive reduction in trading costs that has occurred in recent years. Not only has the price fallen, but the latency, the amount of time the SIPs take to process and report trades and quotes, has fallen as well. Latency has fallen 99.7% since 2010. The cost for nonprofessional data is quite low. For a very large broker, the cost of real-time nonprofessional data is about $0.17 per customer per month, about the same as a sip of Starbucks.”

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Exchanges Say Some Equities-Data Revenue Declined Over 10 Years

A committee of U.S. exchanges including NYSE Group Inc. and Nasdaq Inc. said the revenue earned from data feeds has decreased since 2007, even as traders and banks complain that they are paying too much for vital market information.

Data revenue from NYSE-listed stocks and other venues fell to below $175 million a year in 2017 from a 10-year peak of more than $200 million, according to a statement Thursday. For Nasdaq-listed stocks and others, revenue remained flat at around $120 million a year.

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