May Market Structure Musings; Data is King

As a follow up to last month’s post, I wanted to share a synopsis of the recent reporting period that came to a close.

Data has, is and will be the underlying theme for the foreseeable future for all market activities. Whether collecting data to determine the course of market structure or the increasing costs of market data, both have impact on what has become the fundamental source for investment strategies.

Transaction Fee Pilot for NMS Stocks

As the comment period draws to a close, general consensus supports the Commission’s proposed Transaction Fee Pilot for NMS Stocks. A quick look at a cross-section of who commented shows no surprises in what side of the issue they fall:

  • Nearly 54 institutional investors representing close to $28 trillion in assets under management have expressed support for the pilot.
  • Twelve industry groups commented with only two expressing concerns for their constituents including brokers and proprietary traders.
  • Fourteen broker dealers/ATSs expressed their opinions and are split based upon their core business model, i.e. market maker, prop desk, best execution agency broker etc.
  • Six members of academia are generally in favor and eager to see the results and digest the data.
  • Two exchange operators are adamantly opposed to the pilot.

Overall, the spirit of the pilot and the Commission’s commitment to employ a data-driven approach are supported. Some concerns were raised regarding the complexity, duration and scope. For example, the complexity involved in including ATS’s was brought to light as well as broadening the universe of stocks to be included.

Both Nasdaq and CBOE expressed their opposition in dramatic fashion as the comment period was coming to a close. As the pilot strikes at the heart of one of the revenue streams that has seen no pressure since the inception of the maker taker framework, their response is not surprising. Collectively, they feel the SEC has overstepped their authority and “has the potential to significantly harm the US economy.” Should the exchanges tie up the issue in the courts, the polarization between market participants on both sides has the potential to create a lively market structure debate. It is now up to the Commission to determine the final scope.

SEC Scrutiny on Market Data fee increases

One topic most market participants outside of the exchanges can agree upon is the high cost of data. Earlier this month the SEC repealed two data price changes by the exchanges. This was a first and the hope by most market participants is that the Commission will continue to keep an eye on fee that are “fair and reasonable.”

This will continue to be on my radar and I will stay apprised as key developments unfold.

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