Reprinted from October 21, 2016 issue of Tabb Forum.This week, the SIP completes a technology upgrade that will tremendously strengthen and increase its speed, rendering latency between consolidated and proprietary market data feeds nearly indistinguishable. But what exactly is the SIP, how does it function, what specific changes are taking place, and who is responsible for those changes? Nasdaq’s Jeff Kimsey explains what you need to know about the SIP’s storied history and new enhancements.
market data feed
The SIP delivers an inexpensive, public feed, with near-perfect up-time on a daily basis, and most important, through times of intense market duress, such as the crash of 1987 and the financial crisis of 2008. This week, the SIP completes a technology upgrade that will tremendously strengthen and increase its speed, to render latency between consolidated and proprietary market data feeds nearly indistinguishable. But what exactly is the SIP, how does it function, what specific changes are taking place, and who is responsible for those changes? Here is what you need to know about the SIP’s storied history and upcoming enhancements.
A Look Back in Time at the Securities Information Processor
There are two SIPs for cash equities, the Consolidated Tape Association (CTA) SIP (for New York Stock Exchange-listed securities) and the UTP SIP (for Nasdaq-listed securities), that are operated by a committee of exchanges. The purpose of these SIPs is to aggregate the best bid and offer quotes and trades from all 14 U.S. exchanges, to create a universal and public data feed. This establishes a nationally recognized standard, and a trusted way for millions of investors to easily view the market activity. Founded more than 40 years ago by Congress and the Securities Exchange Commission (SEC) and as a result of the 1975 amendments to the Exchange Act, both SIPs continue to play a monumental role in shaping our National Market System (NMS).
Created to ensure investors viewed the same stock prices no matter which exchange they were trading on, the SIPs have evolved into one of the most resilient, transparent and reliable ways for investors to receive an actionable, cost-efficient and real-time market data feed. Every two years the Unlisted Trading Privileges (UTP) Operating Committee votes to choose a technology provider to operate the SIP for Nasdaq-listed securities. Two years ago, the committee unanimously voted for Nasdaq to operate the SIP as the administrator and technology provider. To help increase resiliency and robustness of the SIPs, the committee voted to create a limited liability company in 2014 called the Consolidated Tape C (CTC) Plan, LLC, to manage the relationship between the SIP and the exchanges that own it, and the SIP’s administrator and technology provider.
A More Resilient, Transparent and Reliable Market Data World
Over the years and as a result of significant industry-wide collaboration and investment, the SIP for Nasdaq-listed securities will soon become the most innovative and technologically advanced market data software solution available to investors. For agreed upon technology enhancements that take place to the SIP, the Committee deploys Nasdaq’s technology. With support from the Operating Committee, we have decreased latency by more than 90 percent through several completed enhancements. This fall, Nasdaq will complete the highly anticipated SIP technology migration to the Nasdaq Financial Framework and INET (proprietary technology that powers Nasdaq and more than 80 other exchanges around the world), which overall reduces latency by approximately 300 percent. This is a tremendous milestone. Upon migration, the latency of the SIP will dramatically decrease, from 480 microseconds today, to less than 20 microseconds – a full calendar year ahead of schedule. Capacity will also increase to accommodate more than 2 million messages per second. Nasdaq is committed to investors and creating a stronger NMS ecosystem, and has made significant investments in the new and improved SIP.
Advisory Committee, Exchange and Industry Harmonization
The new SIPs are a leap forward for all market participants, and showcase increased transparency and collaboration from the Advisory Committee and Exchanges for the greater good of the markets. Under SEC rules and to help ensure operations at the highest level, each SIP liaises closely with an Advisory Committee comprised of nine industry representatives, including five representatives from Securities Industry and Financial Markets Association (SIFMA) member firms. The Advisory Committee and Exchanges meet quarterly with the SEC to review SIP performance and discuss policy matters, which has led to the identification of approximately 30 SIPs enhancements over the past three years, many of which have already or will be completed this fall. Some of these include: improving the resiliency of the UTP SIP Business Logic Unit, Front End Processors, Load Balancing, Halt Dissemination Resiliency and new Improved Operational Tools.
Nasdaq relies on the Advisory Committee members for constructive feedback, and their contributions have played a major role in advancing the future of our markets. Together, we are creating a faster, more resilient SIP with more capacity than ever before.
While the SIPs continue to evolve in tandem with our markets, pricing for the consolidated data feed has remained the same for nearly three decades. Thirty years of unchanged prices. SIP data continues to be a highly competitive and inexpensive option for tens of millions of investors. The SIPs continue to undergo significant transformation, and more information about the SIP can be read in a recently published Equity Markets Association market data whitepaper.
It is our shared responsibility to work with the Advisory Committee, exchanges, investors and all market participants to continually explore ways to improve the SIP. One potential option is creating multiple SIP locations, which could further reduce latency for firms receiving SIP data versus proprietary data feeds, and also create cost reductions for clients wanting to receive SIP data from a central data repository. Another potential option is to add competing consolidators, which would create the ability for any and all firms that have approval from the SEC to become a consolidator. Firms would subscribe to this product, but it would still be administered through the CTA or UTP.
These are just a sampling of outside-the-box ideas that may help drive SIP innovation. Our work on the SIP will never end, as we always seek to improve, but we have already come together as an industry to create a more resilient, transparent and reliable market data ecosystem.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.