The goal of the popular board game Monopoly is to bankrupt the other players. By owning the high rent properties Park Place and Boardwalk (if only the game's originators could see Atlantic City today), a player's odds of draining the most funny money out of the competition are pretty good.
A recent report generated by SIFMA titled "An Economic Study of Securities Market Data Pricing by the Exchanges" (http://www.sifma.org/legislative/financial_services/pdf/SLCG-Market-Data-Study.pdf) challenges the SEC to investigate whether NYSE Euronext and NASDAQ OMX are exerting monopoly pricing power by charging brokers and retail investors fees that are well above the cost of consolidating and distributing data.
This brouhaha caught my eye because I thought the report would shed light on market data infrastructure costs, which would be useful to how we position our software for analyzing and storing data. One of the main arguments SIFMA uses to make its case concerns the use of depth-of-book data and whether NYSE and NASDAQ have the right to charge as much as they do for it, since they conclude "there is an inelastic demand" for it and the markup price is exorbitant.
I agree that in order to gain access to depth-of-book, the two major U.S. exchanges are pretty much the only places to access the data. What I'm curious about is a rebuttal from the exchanges that states their technology infrastructure costs for processing, normalizing, cleansing and storing this vast amount of information. Reg NMS put the burden of storing market depth for each exchange or ECN upon the market centers, not the brokers.
Brokers are well aware that having the necessary technology to avoid missing ticks can be worth millions of dollars on one wrong trade. Then there's the whole storage issue. We're talking terabytes of order book data per week! Are brokers really prepared to spend millions of dollars per year to process and store the data themselves? It also raises questions about the future intention of the major exchanges. Will they soon compete with the brokers they serve today? Do they possess the necessary technology pieces to become full-fledged market data providers? The next few years should be very interesting watching this drama unfold. Until then, Park Place and Boardwalk will continue to command the most rent for data.
I agree this is really interesting and helpful report, provided data explained in this report is reliable and true.
Posted by: verzekering offerte | March 04, 2009 at 05:35 AM