Wall Street Calls for Overhaul of Public Stock-Market Data Feed

Jul 14, 2014 10:22 am ET

July 14 (Bloomberg) -- Wall Street’s regulators should consider overhauling the data feed that transmits stock prices, according to the group representing U.S. securities firms.

The Securities Industry and Financial Markets Association made the recommendation in a paper outlining ways to improve the $23 trillion U.S. equity market. Other ideas include reducing the fees public exchanges charge to 5 cents for 100 shares traded from 30 cents per 100 shares and greater transparency about what different order types mean.

The group’s proposals come amid heightened debate on how stock trading operates. The Securities and Exchange Commission has begun a review, while the Senate has held two hearings on the issue in the last few weeks. The operation of the public feed has moved into focus after a malfunction caused a three- hour halt in the trading of Nasdaq-listed stocks in August.

The ticker “should be eliminated and replaced with commercially competitive Market Data Aggregators, which could be any commercial entity that meets established standards for operation, including exchanges (or groups of exchanges) as well as traditional financial-technology vendors,” Sifma said in its recommendations.

Changing how the public feed works has been on Sifma’s agenda for at least several months. In December, the group said the system needed improved oversight, transparency and backup.

Pricing Change

The latest suggestions also include a call to change the stock exchanges’ price structure, arguing for a move away from charging a high fee to some customers while paying rebates to others, a system known as maker-taker.

That price structure has led to “a proliferation of order types designed to avoid access fees and capture rebates, and that, in turn, adds complexity to the system, requires ongoing technology changes and creates the potential for market instability.”

The maker-taker model was the focus of a Senate hearing last month. Thomas Farley, president of NYSE Group, said at the session that his company wanted to end the practice.

“Broad adoption of this policy would reduce the conflicts inherent in such pricing,” Farley told the Senate’s Permanent Subcommittee on Investigations.

Another Sifma recommendation in line with recent NYSE comments is its call for improved exchange order types. Sifma said the SEC should “determine whether certain order types contribute to or create activity that otherwise should be discouraged.” Stock exchanges should also explain how much each order type is used.

At a Senate Banking Committee hearing this month, Jeffrey Sprecher, the chief executive officer of NYSE owner Intercontinental Exchange Inc., said he would like to reduce the number of order types his exchanges offer.