Traders and exchanges cross swords over data costs

Exchanges are desperate to increase revenues following a precipitous drop in commissions and trading volumes through the last ten years, while the financial crisis has left banks working non-stop to lower their costs. Eric Noll, Chief Executive of brokerage firm Convergex, has called the pattern 'disturbing'. Meanwhile, the Financial Times online reports that Tabb Group has estimated that revenues of US exchanges have gone up by 16 per cent over the past five years, in spite of a drop off in market-making profits, brokerage revenues and trading volumes. The trend is largely due to escalating revenues for data.

Last month the Securities Industry and Financial Markets Association lost a painstaking lawsuit against the exchanges over spiralling data costs, though an appeal is expected. The battle lines are presently being drawn as two Congressmen work towards a new bill that would give broker-dealers more input on the 'securities information processor' - the data flow that is being dominated by the exchanges. 

However critics have been quick to speak out in light of exchanges' selling of faster, more efficient data feeds which has diverted valuable investment away from the SIP. A data monopoly has emerged, according to some, because asset managers, trading firms and brokers can do little but purchase quicker data feeds from the big exchanges. 

Speaking in the Financial Times online, one Wall Street banker called his firm's market data bills "astronomical", adding "Market data and connectivity is still a monopoly, and they're exploiting that. There's no way to control this cost escalation."

Those in favour of the bill maintain that it will bring more investment, creating another option besides direct feeds and the high prices they command.