SEC Incorrectly Sizing up Competition in Market Data: SIFMA

Turning the collection of market data into a competitive business is a fatally flawed idea, said the Securities Industry and Financial Markets Association last week in response to a Securities and Exchange Commission proposal that seeks to do so.

The SEC has proposed the introduction of fees for the use of market data made available by NYSE Arca Inc., a subsidiary of NYSE Euronext.

SIFMA, however, contends the SEC proposal is based on the incorrect assumption that competition for order flow among the various stock exchanges is akin to competition for market data. It outlined its case in a comment letter released July 11.

Currently, market participants purchase data from multiple exchanges even if a certain exchange's market share of liquidity for a product approaches 50%.

Introducing price competition over obtaining that data would disrupt that system and be counterintuitive to the SEC's congressional mandate to ensure prices are fair and reasonable, said SIFMA.

Market data from the NYSE and the Nasdaq are necessary components for an investment professional's business, like gas or water service to a home, said Ira Hammerman, general counsel, SIFMA.

"Gas power cannot serve as a substitute for water service—each is unique and therefore retains its monopoly pricing power—exactly like the exchanges' market data products," Hammerman said.

Financial firms are required by law to provide their trading data to the exchanges at no cost and then buy back consolidated market data from the exchanges.

But on June 4, the SEC released its Proposed Order 34-57917, aimed at establishing fees for certain market data that, currently, is available without charge.

To illustrate its opposition to the SEC's proposal, SIFMA released its own market data study alongside its July 11 comment letter.

SIFMA's complete study can be found here: http://www.sifma.org/legislative/financial_services/pdf/SLCG-Market-Data-Study.pdf