Wall Street Traders Upset About How Much Exchanges Earn From Market Data

The issue of data ownership is becoming more contentious. And this does suggest that technology is causing margins in finance  to tighten.

But highly profitable Wall Street firms filing a regulatory complaint that an oligopoly unfairly benefits from sales of competitively advantageous information? Irony abounds...JL

Dave Michaels reports in the Wall Street Journal:

Some of Wall Street's biggest firms have asked the Securities and Exchange Commission to rein in prices that exchanges charge for premier data packages about market activity. In recent years, exchanges have sought to boost profits by slicing and dicing the torrent of electronic orders that pour through their systems. “For-profit exchanges enjoy an oligopoly over the dissemination and sale of market data,”
Some of Wall Street’s biggest banks, asset managers and high-speed trading firms have united in a battle over a shared adversary: stock exchanges and the profit they earn from selling market data.
A group of 24 firms—including Morgan Stanley, Vanguard Group, and Virtu Financial Inc. —have asked the Securities and Exchange Commission to rein in prices that exchanges charge for premier data packages offering the most detail about market activity. In recent years, exchanges have sought to boost profits by slicing and dicing the torrent of electronic orders that pour through their systems.

The firms say the SEC should impose a rule forcing exchanges to reveal their profit margin for market-data products, as well as the number of clients that buy them. The SEC has historically taken a hands-off approach to exchanges’ customized market-data products. Instead, it has focused on regulating the quality of the consolidated tape, a less complete picture of market activity that is generally shown to investors trading on retail brokerage platforms.
“For-profit exchanges enjoy an oligopoly over the dissemination and sale of market data,” the firms say in their request, which was submitted to the SEC on Wednesday. An SEC spokesman declined to comment on the firms’ request.
Securities laws require exchanges to distribute market data on terms that are “fair and reasonable” and nondiscriminatory. The group of brokers, traders and asset managers argue exchanges’ published rules don’t disclose enough to judge whether the price increases conform with legal standards.
“They tend to be rote descriptions of what the product is, the amount of the increase and a lot of boilerplate justification,” said John Ramsay, chief market policy officer for IEX Group Inc., an exchange that doesn’t sell its market data. IEX is one of the companies that signed the letter to the SEC.
Nasdaq, Cboe Global Markets Inc., and Intercontinental Exchange Inc., the owner of the New York Stock Exchange, have countered that market-data pricing is fair and that no trader is obligated to purchase faster and more comprehensive order data.
Some studies have found big increases in traders’ market-data bills as exchanges have introduced richer views of market data. A trader needing the fastest connection to the most detailed order data pays about $182,775 a month in 2017, up from $72,150 a month in 2012, according to Healthy Markets Association, a coalition of investment managers.
Wall Street brokers such as Morgan Stanley and Citigroup Inc. have waged a long-running legal battle with exchanges over market-data prices. In June, an SEC administrative law judge ruled for exchanges and against the brokers’ trade association. The brokers appealed the decision to the full three-member SEC, which hasn’t ruled on the appeal.
The rule-making request also asks the SEC to require that exchanges disclose how much revenue they earn from the sale of consolidated-tape data, which only shows the latest trade and best current price for stocks. Exchanges should also be required to seek public comment before they increase prices for consolidated-tape data, the letter says.
The SEC has rarely acted in recent years on rule-making requests filed by investors or companies. But brokers have won the support of the U.S. Treasury Department for their cause, a factor that could affect how the SEC responds. The Treasury Department recommended in October that the SEC scrutinize exchanges’ market-data offerings more closely because the business “is not fully competitive.”
The companies that signed the rule-making request also include Bloomberg LP, Citadel Securities, Citigroup Inc., E*Trade Financial Corp. , Fidelity Investments, Hudson River Trading LLC, Charles Schwab Corp. , TD Ameritrade Inc., T. Rowe Price Group Inc. and UBS Group AG .