[ M A R K E T
R E V I E W
ing market data and connectivity to
investors, which Katsuyama has de-
scribed in the past as being “almost
completely cloaked in darkness”.
“The costs IEX incurs to offer
these products and services include
the same basic costs incurred by
other exchanges,” Katsuyama said
about IEX’s report. “The potential
profit margins that are implied by
our study, on their face, contradict
the claims by the major exchang-
es that the fees they charge the
industry for their market data and
connectivity are fair, reasonable,
and competitive.”
At the same time, Phil Mackin-
tosh, chief economist at Nasdaq,
stated in a blog post published the
same day as IEX’s costs disclosure
that all-in-costs to trade, including
the costs of colocation, data and
trading per share, are under 10 mils
(or 0.1 cents per share) across all
venues, Cboe, Nasdaq, NYSE and
IEX.
“Interestingly the “free data and
colocation model” offered by IEX
is the most expensive exchange
on a per-share basis,” Mackintosh
added. “Given the fundamental role
of the market is to allocate capital
efficiently, it’s a little bizarre that
56 // TheTrade // Spring 2019
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E X C H A N G E S ]
Against this backdrop, a band of
institutions in the US announced
plans to launch MEMX which aims
to reduce fixed costs of trading
with a low-cost fee structure, a
move that some in the industry
professional asset allocators think
creating a free-rider problem is
good for markets.”
The battle over exchange market
data costs and connectivity came
to a head in October, after the
“All exchanges, including IEX, have a distinctive
responsibility to help maintain a healthy capital
markets ecosystem and must be held to a higher
standard than any other participant.”
BRAD KATSUYAMA, CHIEF EXECUTIVE, IEX
US financial regulator hosted a
roundtable discussion with in-
dustry heavyweights on the issue.
Broker-dealers, trading firms and
IEX heatedly argued the fees that
exchanges charge for depth of book
data, as well as SIP data, are grossly
overpriced considering how little
they supposedly cost to produce.
Major Wall Street firms, along-
side IEX, have urged the Securities
and Exchange Commission (SEC)
to examine the fees in terms of
revenues and costs, but incumbent
exchange groups countered that
for full transparency, every firm
must reveal their operational costs.
suggested could be a ploy to bring
the issue of costs to the incumbent
exchanges.
“All exchanges, including IEX,
have a distinctive responsibil-
ity to help maintain a healthy
capital markets ecosystem and
must be held to a higher standard
than any other participant. With
this unique regulatory position
comes the responsibility to prove
that the prices they charge their
members are fair, reasonable, and
promote rather than undermine
competition. The exchanges owe
us all some answers,” Katsuyama
concluded.