NYSE Proposes It Build a Modern Consolidated Tape
In a Linkedin article published Thursday, NYSE Chief Operating Officer Michael Blaugrund said that the industry is asking or a more modern means of tracking stock trading activities. He responded that his exchange should build it.
Here is the article in its entirety…
The consolidated tape is a hallmark feature of the U.S. equity markets, providing investors a simple, single mechanism to understand the state of displayed liquidity and recent transactions across many venues. Conceived more than 45 years ago, it has played an important role in making American equity markets accessible, transparent, and resilient.
But over the past 45 years, technology and market structure have changed dramatically. Regional stock exchange floors have been replaced with multiple New Jersey-based data centers. Armies of sales traders looking at prices on screens have been replaced by algorithms consuming “non-displayed” data feeds. And retail investors who once called their broker to ask for a quote are increasingly trading through smart phone apps or digital assistants.
Given the degree of marketplace change, it is more than appropriate to ask whether the consolidated tape, which is operated through entities called securities information processors, or SIPs, needs to be modernized. Based on the industry’s concerns about the differences between SIP and proprietary market data, the answer is clearly “Yes”.
What should this modernization look like? NYSE recently filed a comment letter recommending that the Commission undertake rulemaking to:
- Expand SIP content to include depth-of-book data, odd lots and auction information. We also recommend displaying protected quotes in terms of shares (not number of round lots)
- Reduce the administrative burden on subscribers by establishing fees based on distinct products instead of user classifications.
- Establish competing consolidators in multiple data centers to minimize geographic latency and create incentives for continued improvement.
- Eliminate unanimous voting requirements under the current Plans.
- Update revenue allocation to reward displayed quotes that result in trades.
To those who follow market structure developments closely, these reforms should look very familiar. They are largely based on previous recommendations of major industry groups, the SEC’s Equity Market Structure Advisory Committee, and the US Department of Treasury’s report on Capital Markets, and the NYSE.
We are embracing the proposals previously made by these organizations in an effort to fast-track reform. The current tape plans have already made meaningful progress on governance matters, including strengthening the role of industry advisors, establishing conflict of interest policies, and ensuring robust audit and information barrier policies for data administration. Instead of beginning a years-long process of debating (and potentially litigating) more novel governance changes, let’s just get to the work of developing the modern SIP which the industry has already requested.
Changes of this magnitude are policy decisions that the SEC should affect via rulemaking, not indirectly through changes to NMS plan governance. SEC-established rules provide a legitimacy to the process that SRO-crafted NMS Plans lack. We believe that much of the industry shares our vision of the end state for the SIP, and we are hopeful other voices will join us in asking the SEC to conduct rulemaking to accelerate its arrival.