What? I need to sign up to read this article? No thanks. Why don't you copy/paste here for the benefit of others?
November 04, 2019 The SIP Data Debate Heats Up, Again Andy Nybo Burton-Taylor International Consulting Follow | Profile | More David Tabaka Burton-Taylor International Consulting Follow | Profile | More Share Pressure from capital market participants and market data consumers seeking to get a better understanding of internal SIP operational characteristics continues to grow, especially as the equity market industry sees declining trading volumes and lower industry commission revenues. The SIP data feed has once again become fodder for the financial news cycle, as a group of capital market participants petitioned the SEC on Sept. 17, 2019, as part of their efforts to require the SIP operators to disclose more granular information on revenues, costs and investments associated with the dissemination of the consolidated tape by the securities information processors (SIP).1 The SEC petition is seeking greater insight into SIP revenues, with greater clarity requested by type of end-users and revenues resulting from audit recoveries. But the key intent of the petition seems to be targeted at gaining a better understanding of the internal SIP operational financials, including payments to operators and administrators of the plans, as well as more detailed information on the costs of operating and enhancing the SIP. Tape Revenues Still Flatlining The petition comes at a time when the SIP revenues have essentially flatlined, with SIP revenue totaling $195.7 million in the first half of 2019, a 0.6% increase from the first half of 2018 and on pace to reach just over $391.0 for all of 2019, representing an increase of 0.7% over 2018. And growth over the past 10 years has been non-existent, with revenues declining by a 0.9% CAGR over the past decade. It is also important to note that the industry SIP revenue totals for the first half of 2019 include $32.0 million in revenue from transaction reporting facilities (TRFs) operated by Nasdaq and NYSE. However, both operators have transaction credit programs in place whereby they incent participation through revenue sharing provisions for their trading participants. Although the magnitude of the rebates returned to participants is not disclosed by either TRF, both have publicly stated that a vast majority of SIP revenues they earn are returned to TRF trading participants. NYSE was the leader in terms of revenue, with its exchanges capturing the largest share of total SIP revenues in the first half of 2019, at $57.8 million in the period, 29.5% of the total. Nasdaq followed closely, with its exchanges capturing 28.4% of total SIP revenue in the period. Cboe and IEX captured 22.7% and 3.0%, respectively, of the SIP revenue share in H119. Nasdaq and NYSE TRFs generated $32.0 million during the first half of 2019. Raising the Ante Pressure from capital market participants and market data consumers seeking to get a better understanding of internal SIP operational characteristics continues to grow, especially as the equity market industry sees declining trading volumes and lower industry commission revenues. And therein lies the rub. Many of the Petition’s signers are involved in multiple efforts to pressure exchanges to lower market data fees. Charles Schwab, Citadel Securities, Fidelity Investments, Morgan Stanley, UBS, and Virtu are all participants in MEMX, a new equity exchange planning to launch that is seeking to bring competition to US equity markets, with one of the stated goals of increasing transparency and lowering fixed costs at existing equities exchanges. No surprise that one of the coalition’s targets is the SIP equity feed, as it seeks to gain additional leverage on building out a potential competitive offering to the SIP tape. Odd Lot Price Data on the Tape? Although the SIP operating committee faces significant industry pressure to enhance the financial transparency associated with its operating activities, it has not stood back quietly. In 2017 it began disseminating significantly enhanced data on revenues through quarterly reports on revenues by the operators, which provided the industry with its first look at SIP revenues and, more important, detailed historical data on revenues by each exchange since 2008. And more recently, the SIP operating committee announced it is collecting industry feedback on a proposal to include odd-lot transaction price data in the feeds, an important enhancement to the feed, especially given the increase in non-standard transaction sizes. As stock prices have increased and retail orders are increasingly being submitted in sizes of less than 100 shares, investors are clearly missing an increasingly important segment of the market. The inclusion of the odd lots would significantly increase transparency for retail traders trading odd lots sizes, providing more clarity on pricing for smaller sized trading lots. Footnote: The petition, signed by the Securities Industry and Financial Markets Association (“SIFMA”), Investment Company Institute (“ICI”), Managed Funds Association (“MFA”), Council of Institutional Investors (“CII”) and a group of capital market firm participants (Bloomberg LP, Capital Research and Management Company, The Charles Schwab Corporation, Citadel Securities, Citigroup Global Markets Inc., Fidelity Investments, Investors Exchange LLC (IEX), J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC, RBC Capital Markets, T. Rowe Price Associates, Inc., UBS Securities LLC, The Vanguard Group, Inc., and Virtu Financial, Inc.) can be found here. Burton-Taylor International Consulting recently published its Quarterly Review of SIP Revenue for U.S. Securities Exchanges H119 report analyzing the SIP revenue sharing program for U.S. equity exchanges and transaction reporting facilities (TRFs). For more information on the report, please click here.