OPINION: Improve the SIP, Don’t Replace It
Like an immortal Highlander, the consolidated tape faces the same truth: There can be only one.
Is the current offering perfect? Far from it.
During the National Security Traders Association’s Market Structure Symposium held in Chicago, Doug Cifu, CEO of Virtu Financial, recommended that the US Securities and Exchange Commission allow competition in SIP space and let market forces set the fees.
Virtu has created a version of the SIP for internal use, which cost the firm approximately $5 million to develop and operate.
However, setting up multiple SIPs for equities would create a mess for the industry. Segal’s Law states that “a man with one watch knows the time. A man with two watches is never sure.”
Despite the complaints of the size of SIP fees and its operational costs, the consolidated tape serves a critical function for the market’s efficiency, liquidity, and fairness as its feed of record.
Introducing multiple SIPs would raise the question of which one the regulators would use to make sure everyone is coloring within the lines? That would be the one to which the market would gravitate.
This is not to say that the SIP could not be improved.
SEC Chairman Jay Clayton, during the same symposium, informed the audience that the regulator’s Division of Trading and Markets would be hosting three upcoming industry roundtables regarding equities market structure.
The regulator slated the second roundtable to address market and market data access and examen the impact of differential access on market efficiency, liquidity, and fairness.
Chairman Clayton, more importantly, would like the roundtable to revisit the SEC’s 2004 decisions regarding SIP data considering the technological, market, and business-model evolution that has occurred in the past 14 years.
The most likely change would be in SIP governance.
Cifu noted that other industry bodies like the Depository Trust & Clearing Corp. as well as the Options Clearing Corp. have end-users on their respective boards.
If broker-dealers could have a chair at the table when determining SIP policy, it would go a long way in addressing a good portion of the industry’s complaints.
Cboe Global Markets president and COO Chris Concannon agreed with Cifu about the need to include broker-dealer representation in SIP governance during the STA Symposium.
Given Chairman Clayton’s willingness to tackle market structure issues head-on, the industry should expect some movement on SIP governance easily be year-end.
With regard to market data reform, the SEC may have bitten off more than it can chew.
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