Starting today and running through Friday afternoon, Nasdaq will take part in a two-day roundtable hosted by the Securities and Exchange Commission (SEC) on the topic of Market Data and Market Access. The SEC will hear from a diverse group of market participants.
Nasdaq proposed three Market Data Proposals that will help make the equity markets more fair, transparent and inclusive.
Here are thoughts from Nasdaq’s roundtable representatives on the topics they will be discussing.
Tom Wittman, Executive Vice President, Nasdaq’s Global Trading and Market Services:
The “two-tiered market” myth
Chairman Clayton has emphasized that policy discussions on market data should be firmly grounded in the interests of Main Street investors—and we agree. Market data innovations have ushered in a new era for investors, who enjoy historically low asset management fees and trading costs, and who benefit from the proliferation of online brokerage services and financial apps powered by data. There is simply no Main Street problem for policymakers to solve here.
There is a persistent myth of a resource-starved and slow “public” feed of market data, and of competing and lightning-fast “private” data feed available for the exclusive use of Wall Street firms. This is not true. An independent study published by Professor James J. Angel, he noted that the SIPs have become so fast they should be acceptable for all regulatory purposes.
Furthermore, all market-data feeds—consolidated and non-consolidated—are equally available to all market participants. All of them are overseen by the Commission. The main difference is that non-consolidated feeds are not designed to fulfill a regulatory purpose and are entirely voluntary. The Commission has determined that broker-dealers are not required to purchase noncore data to satisfy their duty of best execution.
If the only outcome of this Roundtable is putting this myth of the “two-tiered system” to rest forever, it will have been a good use of two days.
Read Tom Wittman’s comment letter to the SEC here.
Nasdaq’s Oliver Albers, Senior Vice President and Head of Strategic Partnerships:
The SIP benefits for Main Street investors
Nasdaq welcomes the opportunity to contribute to a better understanding of the Securities Information, Processors, or SIPs.
The SIPs consolidate the best bid and best offer and last sale from all US equity exchanges, and also calculate and disseminate the national best bid and offer (or NBBO) for any publicly traded equity in the US. The NBBO is a really important reference price and benchmark for investors—so much so that nearly 97% of trades occur at or within the NBBO. The SIPs are the basis for this important information, but firms can also create their own BBO, which is not easy for all participants. The SIPs make it easy.
There have been vast improvements in SIP data in recent years, even as SIP revenue to exchanges has fallen. The Nasdaq SIP has average latency of just 16 millionths of a second, fifteen thousand times faster than the blink of an eye. It can also handle 10 billion messages per day, twenty times more than a decade ago. And significant cybersecurity and fraud-prevention investments by Nasdaq and other operators have increased overall market efficiency and resiliency.
Most importantly, SIP data comes at low or no cost to Main Street investors. The nominal price for SIP data has dropped by 96.3% over 30 years.
John Yetter, Vice President and Assistant General Counsel, Nasdaq’s Office of General Counsel:
Harnessing technology to make market data better
Over the past 11 years, Nasdaq has harnessed technology to vastly improve the performance of the equity markets, especially the SIP, the public data feed that powers the equities market. And while Nasdaq expects this latency and capacity trend to continue, we also recognize theoretical limits are being approached, thereby slowing this trend’s rate of change.
But if the rate of change is slowing, technology advancements are not. There are plenty of technologies on the horizon that can be used to enhance the SIPs. Latency is inherent because the computing infrastructure of the SIPs and their participants are housed at different physical locations. As such, it naturally takes time for information to traverse the distance between locations.
However, participant connectivity choices also play a role in this time – and we recognize these connectivity choices create latency variances. To address these variances, Nasdaq proposes that the SIPs assume responsibility for these telecommunication networks, and in doing so, extend the SIP network to each participant’s location.
Nasdaq acknowledges the material latencies that exist between participants and SIPs as well as those between SIPs and consumers of SIP data. Unsurprisingly, this has led to questioning whether geographic latencies can be overcome by producing this information in multiple participant locations simultaneously, or whether the concept of a national BBO and Last Sale should be replaced in favor of regional equivalents.
Nasdaq welcomes this conversation, but notes that what matters most to Main Street investors is having a single, reliable, NBBO and last sale price and geographic latency is simply the cost of creating those.
Jeffrey Davis, Vice President and Deputy General Counsel, Nasdaq’s Office of General Counsel:
Transparency and collaboration that helps all investors
As Chairman Clayton has observed, the process of becoming and operating as a public company tends to make companies healthier, and that is definitely true of Nasdaq. As a publicly-reporting company, Nasdaq is subject to significant financial disclosure obligations, the same obligations that apply to many banks and brokers that operate dark ATSs and single-dealer platforms that compete with Nasdaq.
The SIP, on the other hand, is a public good and not publicly reporting. There, we share the industry’s view that as a public good SIPs should be governed with broad public transparency and SEC oversight—as they are now.
The SIPs have taken important steps to increase transparency, and we believe more can and should be done in transparency surrounding accounting, performance, and governance.
To build on this momentum, we proposed expanding the role of SIP advisors, as well as ensuring that the investing public has a strong voice on the advisory committee.