The article was written by Blair Goldenberg, a Financial Analyst at I Know First, and enrolled in a Masters of Finance at Colorado State University.

Market Data

Price Increase on Market Data Fuels Backlash

Summary

• Market Data
• Changes on Wall Street
• Competition on Market Data
• Effects of the Price Increase

Market Data

Market data refers to actual data that reflects the stock market trading and is reported by trading venues such as the New York Stock Exchange. The data can be as simple as the ticker simple, the ask price, and the exchange code. But it can also include the bid of a specific stock, the volume that had previously been traded, etc. It is essentially data that the members who are trading, generate, which is basically the members own data.

Changes on Wall Street

An increase in market data price has become a key topic on Wall Street. If market data is just membership data, generated by the members, for the members, why do they have to pay so much for it? Over the last 5 years, the market data price has grown 20% each year. There is a debate on whether the market data is even useful for trading. The stock exchanges, particularly the New York Stock Exchange and Nasdaq, say that market data isn’t necessary or essential for trading, while many customers and the rivals of the above mentioned exchanges say that it is.

Competition on Market Data

The exchanges say that the generated market data is only optional and that there is competition in the field, so use of the S&P 500 and NYSE are one of many. The data generated isn’t unique, so the competitors have the exact same information that the S&P 500 and NYSE generate. A judge assigned to a case earlier this year from the Securities Exchange Commission ruled, after having reviewed extensive evidence, that market data is subject to competition and therefore could legally, and fairly, increase price at will. Finance is not immune to competitive laws that prohibit monopolization. The S&P 500 and NYSE may be some of the biggest names in the stock exchange field but they are not the only ones and the fact that the judge ruled in favor of competition is in line with the law of the land. If these were the only two options that were available for market data, the judge would have ruled much differently.

Effects of the Price Increase

Industry leaders are projecting that our markets will be adversely effected because of the price increase and the new taxation that the exchanges are introducing in order to increase valuation. The industry leaders are also saying that they may have to increase quotes which will then effect brokers because it will make it harder for them and will decrease liquidity for consumers. With the leaps in technology and the immediate access to data in other markets, insiders are saying that the finance market is backwards. The data should be available, if not for free, at a reasonable price.

The major backlash on the price increase has to do with the fact that it seems that the exchanges are increasing their prices with no actual reasoning. They’ve raised prices in an arbitrary way that doesn’t make sense for the industry. It shows that they are using their prestige as a way of monopolizing the market, even with all the other competitors in the market.

The reason why exchanges can charge for the market data to begin with is that they are automated which was not the case not too long ago, and “exchanges are banned from providing data directly to customers before providing the same data to the plan processors for the consolidated live stream. However, the trading center data feeds still gets the information to clients quicker, as the data doesn’t have to go through an extra step of consolidation.” Because of this fact, exchanges are now able to charge more for the data that doesn’t have to go through the consolidation process, which means that their provided data will be quicker to the consumer.

Information used to be charged per trade on a commission basis, because cost of trading has changed the way data is sold had to change as well. Now instead of the market data being sold on a commission basis, it is now sold as a monthly fee to the consumer. The fact that market data is paid for by consumers isn’t a new concept. In fact, it’s been around for many years and was even more expensive than it is now comparatively. The increase itself is a minimal increase for the Finance giants and would normally not phase them, but because of the current state of the market, it does. A senior executive from a top trading company said, “in the heyday, when volumes and volatility were high, everyone is making money, you don’t look at cost so much. When they struggle, they look at expenses and say ‘What the heck?'” As with anyone in any field, when money is flowing, small costs don’t make much of a difference, but when the economy or the company is running into financial issues, they need to cut costs as much as possible and are more likely to analyze their billing statements. However, the trading firms that are trying to cut their costs are generally just trying to make a larger profit. The way to do that is to cut costs wherever they can. In this case, they’re trying to cut costs on the data that they use for their trades.