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Consolidated tape overhaul? Don’t hold your breath

At the start of 2020, the US Securities and Exchange Commission (SEC) proposed an update of how consolidated equity market data, or consolidated tape, is governed under National Market System (NMS) rules. This doesn’t mean the SEC has issued an exact prescription for how market data should be distributed, only that the regulator is raising this issue, asking equities exchanges and their self-regulatory organizations for proposals, and soliciting public comment, to consider what action it may take.

As the SEC stated in its January 8 announcement, an issue has emerged about whether current governance discourages enhancement of equity market data feeds, leaving them slower and less complete than the proprietary market data feeds privately offered by the exchanges themselves.

What is consolidated tape?

The current consolidated “tape” of market data, as its name suggests, is an amalgamation of the public feeds from major US securities exchanges including the NYSE and Nasdaq, along with trading of corporate stocks and exchange-traded funds. These feeds, known as SIPs (securities information processors), only include the top-of-book or best available prices. SIPs transmit this information at a speed that is useful for human-directed trading, but obsolete in a market dominated by automated trading.

Costs and cost restrictions

The proprietary market data feeds offered by NYSE, Nasdaq and the CBOE are more complete and are transmitted faster, but cost more to obtain. The faster transmission can be achieved through microwave links rather than fiber optic connections, and can cost more than 10 times the price of fiber optics. Aside from the apparent technology costs, critics of the current consolidated tape system for market data say the existence of the proprietary feeds sold by the same exchanges who control the SIPs, leads to an unfair gap in access to market data that undermines the credibility of the securities markets.

While proprietary traders need not rely on the consolidated tape, investment funds and mutual funds (the buy side of the market) become disadvantaged if they cannot afford proprietary market data and the consolidated tape is insufficient to support their market data needs. IEX, a newer alternative exchange founded in 2016, has stated that its rivals are marking up the cost of their proprietary market data feeds by percentages in the thousands.

Consolidated tape pricing can be in the hundreds of thousands of dollars per month for broker-dealer enterprises (the sell side), although looked at another way, that can be as low as $19 per month per device when a subscribing firm has 10,000 or more display devices. Those with just a single device pay $45 per month. The Consolidated Tape Association administers the feed and collects these fees from users.

One could argue that upgrading the consolidated tape will require an increase in those low prices. Whether such an increase would put the cost in the same range as proprietary feed charges could be another debate in the securities industry.

What’s at stake with consolidated tape

Looking at these price figures gives some idea of what’s at stake here for market participants from both the buy and sell sides, and the exchanges. Combine the cost debate with the debate over how advanced an overhaul of the consolidated tape can be or should be, and you have the makings of a change that could significantly impact how market data is handled. However, political considerations, in terms of the ongoing makeup of the SEC itself (the appointment of commissioners to multi-year terms), will likely end up making the consideration of the consolidated tape issue, followed by a proposal, and followed by debate over that proposal, before any change is actually implemented, a process that could take the entire decade to come.

How you should react to these developments depends on your position or role in the markets, but now you know what’s behind how you get your market data.

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