[ N E W S
when [Concannon] comes in here and
says, ‘I’m not looking for compromise’,
that’s basically the kind of system we have
now. They get to set the rules for us, and
we basically have to follow them. That’s a
tilted system which needs to be addressed.
An ecosystem of a for-profit company that
can self-regulate itself and police reform
that allows it to get flow is a terrible cock-
tail that has been created, unfortunately,
and it needs to be addressed.”
Kinak urged the SEC to consider that
purchasing SIP and direct data feeds is a
best execution, and therefore regulatory,
obligation. He added that if T. Rowe Price’s
brokers do not have access to, and are not
using the most robust data feeds, they do
not get flow from his firm. The way to deal
with this, he said, is to lower the costs by
encouraging competition.
“As far as brokers having a choice as to
whether to use the SIP or direct feeds, that
doesn’t exist,” Kinak said. “There is no
choice there. If a broker is routing using
just SIP data they are not routing my flow.
They are not eligible to get my flow, it’s not
negotiable. Trading is a zero-sum game and
if I’m slower than the other person I lose –
that’s it. And this is a best execution obliga-
tion, we are obligated to try and price best
execution with every order that we have.”
Concannon made the case that it is
not market data and access fees that are
increasing, but client demand for capacity,
speed and content. When countering calls
for exchanges to reveal the true cost of
providing such services to the industry,
Concannon said that if the SEC wants
full transparency, “everybody has to show
their economic rent so that we can com-
pare them”. Referring on several occasions
to the controversial maker-taker debate
and the fact that exchanges pay brokers
millions of dollars in rebates every year,
he highlighted that exchanges were then
accused of conducting a coordinated effort
to distract from the main issue.
An outspoken critic of the alleged
monopoly and regulatory advantages
exchanges receive, IEX’s Katsuyama
co-founded a competing exchange to
R E V I E W ]
counter that culture, which receives a por-
tion of the SIP data fees that are generated.
He called on the SEC to examine the fees
based on full transparency of revenues and
costs to manage the SIP, provide direct
data feeds and exchange access, and oper-
ate such systems.
“Law and regulation gives exchanges
a special status. Because of this status
and the need for brokers seeking best
execution to trade actively on all major
exchanges in order to meet obligations to
their clients, the exchange families enjoy
a regulatory monopoly on the sale of their
products,” Katsuyama said.
“The market data they sell is not generat-
ed so much as regenerated from the trad-
ing activity of their own members. Further,
because the exchanges also control the
so-called public consolidated data feeds,
by design they have ensured those feeds
are sub-optimal for sophisticated traders,
perpetuating their product monopolies
and a multi-tier system of market data.”
A bold claim, but one that underlines
just how deep-rooted the debate of market
data cost is. The SEC has a tough decision
ahead of it in terms of which side it agrees
with. If exchanges are forced to disclose
their costs of operation, should sell-side
institutions be held to the same standard?
Are the fees imposed by the exchanges for
market data and access justified? And is
there enough competition in the market
to prevent a monopoly that exchanges
supposedly enjoy?
Regardless of its decision, the battle
between Wall Street and the regulated
exchanges – with the exception of IEX
– will likely rage on, with little room for
concession on either side.
“If a broker is routing using just SIP
data, they are not eligible to get my
flow… Trading is a zero-sum game
and if I’m slower than the other
person I lose - that’s it.”
MEHMET KINAK, T. ROWE PRICE
Issue 58 // TheTradeNews.com // 45