Market data in equity markets is a complex subject and one that the SEC has not addressed in any meaningful way since the 1970’s. In February, the agency proposed to update and expand their policies in what has been dubbed Reg NMS II by the industry. What are the key drivers to this discussion?
On May 12, Titan Regulation & Advisory and Eventus Systems hosted a fifteen minute Compliance Quick Cuts webinar that covered this sensitive issue. In the webinar, Nicholas Wendland of Faegre Drinker joined hosts Travis Schwab from Eventus and Julie Dixon of Titan for a quick conversation.
Wendland mentioned that market data has become so complex that there are multiple providers that make their livings by unwinding them as they are constantly being altered and updated. While he agrees with the goals of Reg NMS II he is not holding his breath that it will resolve all of the issues relating to market data.
A problem with market data, Dixon pointed out, is that the other revenue sources for exchanges have decreased materially over time while their operating costs remain high. Therefore, the sale of market data is a critical source of operating revenue for the exchanges, allowing them to remain open and operating. This is difficult for market participants, however, because if they feel as though prices are too high, they do not have any other reliable, time sensitive data source. Market data costs have really become a proxy for membership fees.
Schwab echoed this as he noted that a recent study from SIFMA found that market data costs for their members has risen between 900% and 2,000% in the past ten years. He also described how the high cost of data leads to economic trade-offs in compliance and surveillance programs as real-time analysis can be compromised because the data to run it is too expensive.
The comment period for Reg NMS II runs until May 26 and it will be interesting to see how the debate unwinds in the months and years ahead. Stay tuned to Eventus and Titan for further updates.
Eventus Systems, Inc. offers Validus, one of the leading global trade surveillance and market risk platforms. Available as a real-time or T+1 cloud-based or on-premise solution, Validus provides sophisticated market surveillance and financial risk capabilities, enabling clients to solve some of the most pressing regulatory challenges. For more information, contact us at firstname.lastname@example.org