Wall Street wants more clarity about how the largest U.S. stock exchanges divvy up revenues from the consolidated data feeds they control.
A group of 18 broker/dealers, asset managers and trade organizations is urging the SEC to beef up exchanges' disclosures about the "public utilities" that are the securities information processors, or SIPs.
Run by the Intercontinental Exchange Inc.-owned New York Stock Exchange and Nasdaq Inc., the SIPs play a crucial role in the U.S. equity markets. The three SIP data feeds are not used by Wall Street's biggest and fastest traders to make split-second decisions. But market participants widely rely on the SIPs to ensure they have a broad picture of stock trading, as the feeds aggregate information from all 13 U.S. stock exchanges.
The companies asking for the SEC review, which include the likes of Citadel Securities LLC, Morgan Stanley & Co. LLC and Vanguard Group Inc., specifically want more details about the total amount of revenue the SIPs generate, how that money is allocated among the entities that help in the SIPs' operations and how much, if any, is allotted for improvements to the feeds.
Eighteen banks, broker/dealers and asset managers have petitioned the SEC to require enhanced disclosures from the leading U.S. stock exchanges about their consolidated trading data feeds. |
"There is an almost complete lack of transparency about exchange proprietary and SIP market data and connectivity revenues and related costs," the group wrote in a rule-making petition to the SEC that was published on the regulator's website Sept. 17.
Among the petitioners were the Securities Industry and Financial Markets Association, the Investment Company Institute, the Managed Funds Association and the Council of Institutional Investors. There were also 14 individual companies that signed onto the petition including Bloomberg LP, Capital Research & Management Co., Charles Schwab Corp., Citigroup Global Markets Inc., Fidelity Investments, IEX Group Inc., J.P. Morgan Securities LLC, RBC Capital Markets LLC, T. Rowe Price Associates Inc., UBS Securities LLC, Virtu Financial Inc., in addition to Citadel, Morgan Stanley and Vanguard.
The petition marks the latest development in a yearslong fight on Wall Street over market data. Banks, broker/dealers and asset managers have been squaring off with exchanges for several years over the venues' costlier proprietary market data products, which offer a more in-depth view of trading than the SIPs.
But the SIPs have become a lightning rod as well.
Industry participants have long argued that the SIPs do not offer much value in today's high-speed electronic stock market because the data they include remains relatively limited. That, they say, prohibits trading desks from using the SIPs in a highly competitive marketplace where fractions of seconds and scores of data points are necessities. Those concerns sparked SEC Chairman Jay Clayton to say in March that he had instructed the Division of Trading and Markets to explore recommendations to improve the data included in the SIPs.
To address some of the industry's concerns about the SIPs, both NYSE and Nasdaq have floated possible reforms to the feeds within the last year.
Nasdaq has proposed reworking the SIPs' revenue allocation formula to encourage tighter spreads and deeper quotes, as well as adding a voice from the "general investing public" on the SIPs' advisory committee. In August, NYSE signaled that it was interested in creating three distinct SIP tiers with each one carrying a different depth of trading data.
Spokespeople for NYSE and Nasdaq declined to comment on the petition.
There are some existing disclosures around SIPs' revenues today, too. The governing entities that operate the feeds report on a quarterly basis how much of the feeds' revenues is paid out to the various trading venues that report into the SIPs, as well as the breakdown between professional and non-professional subscribers. There was a total of $389.4 million paid out by the three SIPs' operating committees in 2018.
Yet, despite those signs of progress, the petitioners say more still needs to be done in order to resolve their concerns about the SIPs' governance structures.
"Accountability for transparency in market data and connectivity fee filings is particularly necessary because exchanges have a natural monopoly over market data their members generate with their trading activity, as well as a monopoly over access to their own markets," the group wrote.

