market data

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Okay, this post’s title is a little misleading. I doubt that any trader would to apply the standard high-frequency trading strategy, which constantly pennies orders throughout the day but does not leave any open positions at the end of the day, when it comes to over-the-counter (OTC) swaps trading.

What has garnered my attention is the Commodity Futures Trading Commission’s (CFTC) trade reporting embargo rule that prevents swaps execution facilities (SEFs) from sharing recently executed trade details with other SEF participants before the SEF’s system releases the trade details to a swaps data repository (SDR).

Such a set up is going to lead to an unholy mess once dealers and non-dealers begin trading on SEFs. It is going to lead to a replay of flash-order headache that happened in the equities market a few years ago.

Yes, I know that the two markets aren’t carbon copies of each other. However, this embargo market data embargo will create a bifurcated market data model consisting of participants taking their feed directly from the SEF and those who will rely on data aggregator or SDR feeds.

According to a few well-placed industry sources, they expect SDRs to operate at the same pace as FINRA’s TRACE reporting platform. That might be fine for manual voice trading, but not when SEF matching engines run at millisecond speeds.

I can see both sides of the argument. Given the very illiquid nature of the OTC swaps market, flashing prices of recent trades helps provide additional liquidity. Yet, to take advantage of it, a market participant will need a direct link to the SEF. That’s an expensive proposition as more and more SEF operators come out of the woodwork.

Large dealers may be able to take on those additional market data costs given the large trade volumes they execute, non-dealers likely will balk at the situation.

In the equities market, all of the exchanges decided to retire their flash orders before the Securities and Exchange Commission (SEC) needed to make an official ruling on the order type. I do not think the CFTC will have the same luxury.

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In filings dated July 3, but posted in today’s Federal Register, the US Securities and Exchange Commission (SEC) published the new fees that the BATS Exchange charges for its major market data feeds and logical port connections, which went into effect on July 1.

Officials from exchange operator announced in April that it would begin charging for certain of its equities data products by the beginning of this month, which is a departure of its free-data model that BATS Exchange pursued since becoming a self-regulatory organization (SRO) in 2008.

The rate of the new monthly fees depend on whether an organization distributes BATS data internally or externally. For firms that distribute the data internally, the monthly rate is $1,000 for BATS PITCH products, which includes TCP and Multicast, and $500 each for Last Sale and TOP feeds. External distributors should expect to pay $5,000 per month for the BATS PITCH products and $2,500 each for Last Sales and TOP products.

The exchange operator also provides three months of historic data, on a day after trade date (T+1) basis, for its BATS PITCH, BATS Multicast PITCH, TOP and Last Sales equities data products for $500. If a customer would like a greater amount of historical data, BATS will provide it for $2,500 per 1TB hard disk drive that will house the data, no matter how much data resides on the drive.

On the logical port front, BATS no longer provides the 32 primary Multicast PITCH Spin Server ports and primary GRP port for free. The exchange operator now charges a $400 monthly fee for “a primary set” of Multicast PITCH Spin Server ports and a $400 monthly fee for a primary set of GRP ports. BATS defines a “primary set of ports” as “the number of ports necessary to get one full set of information from the exchange based on load balancing by the Exchange.”

The comment period for these proposed rule changes ends on July 31.

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Global exchange operator NYSE Euronext plans to add a new top-of-book consolidated data feed for its NYSE, NYSE Arca and NYSE MKT data feeds, dubbed NYSE Best Quote and Trade (BQT) and should be available later this week, say NYSE Technologies officials.

According to Todd Watkins, vice president, global market data at NYSE Technologies, the new product is an alternative for clients, who currently subscribe to the three top-of-book feeds separately like wealth managers and back-office professionals.  NYSE BQT is aggressively priced and users could see up to a 45% cost savings on their annual data costs compared to taking the Level-1 data feeds separately from the three SROs, he adds.

NYSE Euronext will deliver the feed via is Secure Financial Transaction Infrastructure (SFTI) using the NYSE low-latency Exchange Data Publisher (XDP) format, says Watkins. However, there are plans to work with existing market data aggregators to offer the feed  through other channels.

Exchange officials also plan to offer the individual top-of-book feeds from NYSE, NYSE Arca and NYSE MKT in the same XDP format, but decline to comment further about that move.

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Earlier this morning I met with Ben Mendoza, CEO of MDSL, to discuss the latest add-on to his firm’s Market Data Manager (MDM) system, which it rolled out the other day.

The new offering, dubbed Access Compliance Engine (ACE), offers users a way to permission and log user access to market data delivered via websites, such as Moody’s or Fitch Ratings. But those providers are just two of the estimated 180 market data vendor that provide more than 800 data offerings via the web, according to Mendoza.

The platform consists of a local proxy sever, which sits next to a firm’s existing web proxy server, and the ACE Web Service, which MDSL hosts as a software-as-a-service (SaaS) offering.

A firm configures the ACE proxy server with a list of web sites that the organization wants to monitor. After that, The ACE proxy server routes all requests for those sites onto the web service to determine if the user making the request is authorized to access site.

If the user is not authorized, the ACE platform can block access and log the attempt or provide multiple alternatives depending on how a firm configures ACE. Some options could allow one-time access for VIP users or request the user provide a necessary business case for access before granting access.

To take advantage of ACE, companies will need to run version 3.2 or later of MDM, which is between 60 to 70 percent of its existing installed base, says Mendoza.

 

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Electronic traders know that milliseconds of latency can cost them a lot. Now, NYSE Euronext know that too.

Without admitting or denying allegations by the US Securities and Exchange Commission (SEC) Exchange, NYSE Euronext officials announced on Sept. 14th that the exchange agreed to pay a $5 million penalty to settle latency discrepancies between two of its proprietary market data feeds and the data it delivers to the Consolidated Quote System (CQS).

According to SEC officials, NYSE Euronext violated Rule 603(a) of Regulation NMS, which prohibits exchanges to deliver quote and trade data to its proprietary feed clients before it sends the same data to the consolidated quote feed, as well as the record-retention section of 17(a)(1) of the Securities Exchange Act.

The regulator inspected several high-volume trading days from early 2010 and found various 15-second intervals where NYSE Euronext’s market data distribution system (MDDS) experienced average delays exceeding 25, 50 or 100 milliseconds, often near the market close, say officials. A number of these periods also had more than 10 percent of their quotes delayed more than a second, including one day in February 2010 where a “substantial” percentage of quotes were delayed by more than five seconds during the last 30 seconds of trading, the officials add.

This would not have been an issue if NYSE Euronext’s Open Book Ultra and PDP Quote, also known as NYSE BBO, feeds also reflected the same delays. However, NYSE Euronext staff designed the exchange’s proprietary feeds to run in parallel with its MDDS. So when the MDDS experienced its delays, the proprietary feeds did not.

NYSE Euronext officials attribute the timing differences to technology issues that they have resolved.

“The violations at the NYSE may have been technological, but they are not technical,” said Daniel Hawke, chief of the SEC’s Division of Enforcement in a prepared statement. “Robust technology governance is just as important to preventing investor harm as any other compliance or supervisory function.”

As part of the settlement, NYSE Euronext will hire an outside consultant, at its own expense, to compile a report on the exchange operator’s current Rule 603(a) compliance of its NYSE, NYSE Arca and NYSE MKT MDDS platforms as well as the related internal policies and procedures. The consultant will then have a chance to recommend changes to improve policies, procedures and platforms, which NYSE Euronext will need to implement.

This action by the SEC is a clear signal to the other regulated exchange operators to have their own proprietary market data feeds up to snuff in regards to Rule 603(a). Although $5 million might be a rounding error to many investment banks, it is not for exchanges. What’s worse is the potential remediation costs they face if they are in breach of the rule.

The SEC probably would have taken an exchange out to the woodshed earlier on this matter if it was not for all of the time and it has spent in rolling out Dodd-Frank regulations with the US Commodity Futures Trading Commission (CFTC) over the past couple of years. But now it sounds like mommy is definitely home.

 

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