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This may be a poorly timed post since the Tabb Forum’s annual fixed-income conference is tomorrow, I’m pretty bearish on meaningful changes in corporate-bond market these days.

There’s been a lot of activity in the electronic-trading space for fixed income over the past year as agency brokerage ITG and Tradeweb launch their respective trading platforms for corporate bonds to compete against MarketAxess’s all-to-all trading model.

Even this week, we saw Lime Brokerage co-founder and former-CEO Alistair Brown announce the February launch of the first phase of OpenBondX, a new electronic fixed-income trading venue.

All of this activity and innovation is reminiscent of all the ECNs that sprung up after the US Securities and Exchange Commission (SEC) changed the order-handling rules in the 1990s and swap-execution -facility(SEF) explosion when the SEC and US Commodity Future Trading Commission (CFTC) began writing the new rules for over-the-counter (OTC) swaps trading mandated by Dodd-Frank.

BlackRock only added gasoline to this fire when it published its white paper calling for a reform of the corporate-bond market’s market structure in September 2014 asking for new and innovative trading models for the market.

However, maybe the buy side should start looking for change internally and not externally.


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The Securities Industry and Financial Market Association (SIFMA) published its recommendations for changes to the US cash equities market structure that promises enough pain for broker-dealers as well as exchanges and alternative trading system operators.

Since reporting on it earlier this week, I am still trying to wrap my brain around the impact SIFMA’s proposed changes would have if the market adopts them.

Besides implementing kill switches, expanding the reporting requirements to the Financial Industry Reporting Authority and reducing/eliminating maker-taker fees, SIFMA recommends that the securities information processors (SIPs), the organizations that gathers all of the market data for NYSE- and Nasdaq-listed stocks from each exchange and reporting facility and aggregates it into consolidated feeds, should first update their data processing infrastructures “so that the SIPs provide the fastest commercially available services for data aggregation and distribution.”

After the SIPs make the necessary upgrades, SIFMA suggest throwing all of it out- baby, bathwater and all- in favor of having it replaced by competitive vendors, which would replace the SIPs with their own aggregated offerings. It would be similar to how the US Securities and Exchange Commission (SEC) retired the out-date Intermarket Trading System (ITS) in favor of private direct links between exchanges as part of its 2005 Regulation NMS market reforms.

Besides being an industry owned and operated market utility, that is where the similarities between the roles of the ITS and SIPs end. The ITS was a network, whose function easily could be replaced with another network provider. The SIPs are not just making an aggregated market data feed. They are making THE aggregated market data feed. You know, the one to which the regulators always refer.

Take that away then what will take its place?

Aggregating market data is not a clean business. It needs to be scrubbed and have any data outliers addressed. It is not possible for two market data aggregators to deliver feeds that are completely consistent tick by tick, much less half a dozen of them.

This is not to say that the SIPs have implemented the perfect method to aggregate market data feeds. They have not, but at least they are industry owned and not operated as for-profit businesses, which makes them perfect as the objective record for the market.

Any other arrangement would open up a regulatory can of worms.

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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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