Leave ordinary investors out of the high-speed data battle

Leave ordinary investors out of the high-speed data battle
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Wall Street firms and stock exchanges have been feuding for over a century over the price and quote data that fuel the markets: Who owns it, how much should it cost and what is the role of government in regulating it?

This battle has recently heated up as the Securities and Exchange Commission (SEC) has now engaged with the exchanges over the issue. The full commission recently overturned a ruling of one of its own judges that found in favor of the exchanges.

One of the SEC’s commissioners has publicly championed the side of institutional investors and high-frequency traders while claiming that the real victims in the market data debate are “ordinary investors.”


There is a false narrative in this debate: that stock exchange market data fees somehow harm individual investors. The opposite is true. The exchanges have passed on the savings from modern technology to the individual investor.

The inflation-adjusted price charged by the exchanges for nonprofessional consolidated real-time data has dropped 96.3 percent since 1987. Delayed data are given away for free.

The charges for exchange data are designed so that the professional traders who benefit from the data the most, pay the most. The professional players pay over 80 percent of the cost of the consolidated stock market data. And the revenues to the exchanges from this consolidated data have fallen 23.7 percent in inflation-adjusted terms since 2008.

The stakes are high for putting to rest the false myth that individual investors are being harmed. This is a policy debate between large sophisticated players over the “new oil” of advanced market data products and technologies. Retail investors don’t really pay for this data and to suggest they do is misleading.

The monthly cost to an individual investor of accessing the real-time data feed that is the backbone of our stock market — and which pumps out stock quotes and prices 5,000 times faster than the blink of an eye — is less than one sip of a Starbucks mocha.

Yes, brokerage firms are charged for real-time data that offers a consolidated view of the market across all exchanges, but the cost per customer per quote comes to less than a penny, and the monthly fee is capped at $3 per month for non-professionals. They pay a lot less if a customer pulls down less than 400 queries in a single month.

Indeed, the super-low cost to retail investors of souped-up data is just another in the list of benefits that make ours a golden age for individual investors. Trading costs are at historical lows. Mutual and exchange traded fund (ETF) management fees are approaching zero.

Anyone with an internet connection can invest with confidence at little or no cost. Indeed, zero-fee trading services like Robinhood couldn’t exist today if fees were rising for retail traders or were anywhere near their old levels.

Meanwhile, demand by the pros for ever-richer, ever-faster access to information about the stock market is rising, fueled by the computerized trading strategies of professional firms and large brokerage houses.

Data are now a competitive advantage. It is the professional and institutional investors who are paying for this data, and it is they who are looking for the government to intervene and give them a break.

To understand why the government is even a player in this debate, we need to first understand how stock-market data works. There are two primary sources for investors about what’s happening in the markets.

One is the so-called Securities Information Processors (SIPs), which are SEC-mandated cooperatives of trading platforms that produce a consolidated feed of all market activity. Their primary goal is to provide investors with the “national best bid and offer” price of any stock, no matter where it is listed or traded.

The SEC regulates the prices for this consolidated data. When you place a trade, your broker generally uses SIP data to show you exactly what is going on in the market. My research shows you are essentially getting it for free.

Other sources for market information are proprietary data feeds sold as products by individual exchanges at prices not subject to government price controls. They are the intellectual property of the exchanges that produce them. These feeds don’t reflect the entire market but can provide a deeper look at trading activity at an exchange.

Because they come directly from an exchange — rather than via a consolidated feed of all exchanges and dark pools — they can be received slightly faster than the consolidated feed. The difference can only matter to a high-frequency trader for whom a few millionths of a second matter.

The time it has taken for the SIPs to consolidate the data has dropped 99.7 percent since 2010 to about 17 millionths of a second for the Nasdaq SIP. That’s how long it takes light to travel about three miles.

This 17 millionths of a second is less than 5 percent of the of the intentional 350 microsecond delay in trading that the SEC approved for IEX as a de minimis exception to the Order Protection Rule.

The biggest speed bump now in the SIP data is the time it takes for a trade or quote to get from a distant exchange’s data center to the SIP. This was not always the case. Those who believe that the SIP data are too slow and thus big players are forced to pay up for faster data are dealing with an obsolete fact set.

The SEC should explicitly clarify that the SIP current latency in the SIP data is de minimis and the SIP data are good enough for all required regulatory purposes.

For ordinary investors, whether your broker uses this or that data product to show you the market is negligible. You’re getting lightning-fast data at virtually no cost. Don’t believe me? Visit Yahoo! Finance and check out the real-time price of any U.S. equity … for free.

The current regulatory battle is not between the stock exchanges and the ordinary investor. It is a squabble over fees between the titans of Wall Street and the stock exchanges. While the big banks are earning record profits, they are arguing that that the government should impose price controls so they can make even greater profits.

Just leave the “ordinary investor” out of it. 

James J. Angel is an associate professor of finance at the McDonough School of Business at Georgetown University. He is the former chair of the Nasdaq Economic Advisory Board and a former member of the Direct Edge Stock Exchange board of directors. His research has been funded by Nasdaq.