Battlefield: Data

Terry Flanagan

Is SIP data a useful entry-level product or is it woebegone and antiquated?

That was a topic for debate yesterday in the latest battle in what is possibly the longest-running war on Wall Street: the market-data war. The setting was Day 1 of the two-day Roundtable on Market Data and Market Access, hosted by the U.S. Securities and Exchange Commission.

Exchanges say the 43-year-old Securities Information Processor provides decent-enough data for market participants with limited data needs. Brokers and investment firms say the data feed is obsolete, and exchanges keep it that way to channel demand into pricey proprietary feeds.

Oliver Albers, Nasdaq

Oliver Albers, Global Head of Strategic Partnerships for Nasdaq Global Information Services, noted that 97% of equity trades occur at or within the National Best Bid and Offer (NBBO), which the SIP displays. The SIP has seen vast improvements over the past few decades, said Albers, who cited sizable reductions in latency, message-traffic capacity more than 20-fold higher, and 96% lower costs for ‘Main Street’ investors.     

“There are many market participants, all with different data needs,” Albers said at the roundtable. “We provide choice to make it possible for all investors to consume data.”

As a key takeaway on the topic, Albers said: “a simplistic view of core vs. non-core, or slow vs. fast, or public vs. private, is misleading.”

Matt Billings, Managing Director of Market Data Strategy at TD Ameritrade, noted that access to quality market data is critical for retail investors. The SIP can provide adequate ‘top of book’ price quotes, but using the SIP entails hurdles such as a cumbersome onboarding process and high overhead costs.

Matt Billings, TD Ameritrade

Billings disputes some industry data that show huge drops in SIP prices over the years, as those figures likely do not factor in connectivity and other indirect costs. “At what point do retail investors move away from SIP to private?” data feeds, Billings asked.

Exchanges have additional costs associated with the SIP beyond just producing data, according to Michael Blaugrund, Head of Equities at NYSE. Exchanges haven’t disclosed the direct cost of the SIP due to concern about “misperception” of the number, he said.

Charles Schwab Corp.’s view is that the SEC should mandate exchanges provide ‘depth of book’ prices on the SIP feed, not just top of book. Exchanges won’t do this voluntarily because it will cannibalize their proprietary data products.

That’s according to Jeff Brown, SVP of Legislative and Regulatory Affairs for Schwab, who likened the SIP to a car designed in the 1980s. “Would anyone buy a 1980s car?”

As a retail investment firm, “we don’t think SIP is all you need,” Brown said. “It is valuable, but it can be upgraded and made relevant again by adding depth of book.”  

An institutional buy-side perspective was offered by Simon Emrich or Norges Bank Investment Management. Emrich said the firm’s traders and risk managers still utilize the SIP feed, but “use cases for SIP data have decreased substantially.”

Traders need to see the full book of data to make the right decisions, not just top of book, Emrich said. And with regard to transaction cost analysis (TCA) that takes place post-trade, “using SIP is no longer sufficient to evaluate best-execution obligations.”

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