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Nasdaq proposes overhauling public market data tapes


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Nasdaq proposes overhauling public market data tapes

The data feeds that publicly disperse stock prices may be getting a makeover, if Nasdaq Inc. gets its way.

Ahead of an SEC event that will explore market data products, the exchange operator has released a series of proposed governance changes to the public tapes known as Securities Information Processors, or SIPs.

Created in the 1970s, the SIPs publicly distribute aggregated data provided by U.S. stock exchanges, including those owned by Nasdaq, Intercontinental Exchange Inc. and Cboe Global Markets Inc. The SIPs serve as the backbone for the national best bid and offer, a benchmark for the best available prices for investors to buy or sell a security at a given time.

Now, as criticism over how exchanges craft and distribute market data products heats up, Nasdaq is proposing to change how the SIPs are overseen.

The changes range from putting more oversight of the feeds into the industry's hands and improving price discovery to recalculating how subscription revenues from the SIPs are divvied up.

Typically sold on a subscription basis, market data products have become a reliable revenue stream for exchanges. In 2017, Nasdaq's information services unit, which includes its market data business, recorded $588 million in revenue.

The SIPs account for a small portion of that business, though, and are divided up among the exchanges. In 2017, the three SIPs' revenues totaled only $386.7 million, up slightly from $381.1 million a year earlier. Through the first half of 2018, the SIPs' revenues were $194.6 million.

Nasdaq hopes to modify the SIPs' revenue allocation formula to reward "behavior that increases market quality, tightens spreads and deepens quotes and holds all trading platforms accountable for best execution."

The company also recommended that the SIPs' advisory committee have a stronger voice from the "general investing public." The committee currently consists of executives from Wall Street institutions such as Charles Schwab Corp., Goldman Sachs Group Inc. and BlackRock Inc.

Market data feeds have been a hotly contested point in the trading realm for years. The proprietary data sold by the exchanges is largely at the center of those debates, as many market participants argue that exchanges have unchecked power in pricing those feeds. A more than five-year-old case over market data prices charged by the New York Stock Exchange and Nasdaq is still ongoing.

But the SEC has begun to look more closely at how the SIPs are priced as well.

In May, the agency rejected a proposal from the exchanges to raise the SIPs' prices and questioned whether the new fees would be fair and not "unreasonably discriminatory." Days later, Cboe President and COO Chris Concannon said the rejection was because the filing needed additional clarity.

The SEC plans to hold an event this year that will explore possible conflicts of interest in the SIPs' governance models and whether the industry would benefit from a new model for the feeds, among other topics, SEC Division of Trading and Markets Director Brett Redfearn said in April.