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I am hoping any answers can be threaded somewhere between "don't be naive" and starting a quasi-political flame.

Transparency is suppose to be good for markets and also a social good. The market reflecting the availability of all known information is a premise accepted by many. Why then is the disparity between access to available information based on what a market participant can afford so widely and readily accepted?

I acknowledge that there is some cost involved in transmitting real-time data, order flow, etc., for instance, but how significant is it? Is it impractical technically or financially when it is amortized over all market players?

Less controversial, why is tick data, etc., not made available free to the public at the end of day? Why is this any more proprietary or the property of a market than the outcome of a baseball game? If by making it freely available data brokers have less incentive to store data why not make that the responsibility of the regulatory agencies (e.g. SEC or whatnot)?

Are there technical or other reasons, aside from powerful financial incentives, to keep things the way they are?

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I think a better question is why offer something for free if someone is willing to pay for it? You may be underestimating the power of financial incentive –  Ockham Jun 9 '12 at 15:47
@user28694 - Yes but that is an end around of the issue. No doubt many people are willing to pay to trade on insider information but we view this as unacceptable and (in theory) punish it. Is there any real difference, beyond the time scale, between a banker letting his hedge fund friend know they are about to close a buyout of XYZ corp in 2 days and select access to market data letting high powered players know that a market moving event will happen minutes or even seconds before the 2nd class market citizens? Sure, there is a huge financial interest there but for the good of the market? –  Rage With The Machine Jun 9 '12 at 16:16
I am by no means an expert and still a student myself so take my opinion with a grain of salt, but I'd imagine that the big hedge fund guys and bankers aren't thinking in terms of what would be good for the market. Their only objective is to preform which reduces your question/comparison to a matter of integrity and morality which is an entirely different debate in my opinion. –  Ockham Jun 9 '12 at 16:41
Why is [tick data] any more proprietary or the property of a market than the outcome of a baseball game? Wow, that's actually a really insightful question. I will say that the smaller exchanges like BATS and DirectEdge often give-out data for free. As for NYSE and NASDAQ, they charge because they can. –  chrisaycock Jun 9 '12 at 17:44
I agree with user28694. Exchange owns the data, and can make money by selling it. Why should it give out for free? –  LazyCat Jun 10 '12 at 0:52
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3 Answers

up vote 4 down vote accepted

On the paper you are right: the market data are close to a public good and could be free because of that. Nevertheless in a fragmented landscape, each trading venue is contributing specifically to the price formation process. Each of them invest that for, and it is thus not unfair to get revenue that for.

If you look at Europe (I am not speaking here about the Reg NMS-driven context for the US), only the historical markets actual ask revenue for their market data. BATS Europe announced that it will ask for fees soon. Nevertheless in the MiFID review actually under scrutiny in Europe, a consolidated post trade tape (i.e. of trades) will have to be free after 15 minutes. It seems to be a good balance. But pre trade data (i.e. orderbooks) are not in the scope of this.

You may know that if the US has a pre trade consolidated tape (in fact three tapes A, B and C), in Europe it is not the case. MiFID could not structure the market microstructure that way because of the numerous clearing and settlement prices across Europe, where you have only one in the US. Consequently if you see a best price in the orderbooks in US: it is your best price for sure. In Europe it is not 100% sure because for a buyer the best ask can be cheaper on NYSE-EuroNext than on BATS-Chi-X, but after considering the clearing and settlement prices, it could be no more the case.

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I think Lehalle answer is very good but I would like to answer in a slightly different manner, maybe from an economical point of view.

I think the real question is What are market data fees charged for?.

Assume the whole data was available to anybody for free, then nobody would be willing to pay for it. There are essentially two main reasons why the data costs something:

  1. The data itself is the property of someone and is not available for free (limited supply resulting in monopolistic environment).
  2. If the raw data was publicly available then you would have to identify the added value from a provider for which you are required to pay a fee.

1) Data availability

Market data is provided by exchanges, it's not there for anybody to observe. If there were no exchange, there would be no real single price for a security. So the exchange is providing a service allowing investor to trade at some centralized price. They basically own this data in a sense. You could try setting up an exchange providing live data for free, but you would see that it costs money (from an infrastructure point of view) so you need to generate money from all possible sources to make it interesting to have an exchange. You could arguably remove market data fees but you would increase transactions costs or some subscription fee to be able to participate to the exchange. So basically, you want to use the service offered by the exchange (which includes market data) and you hence pay for that service.

2) Added value

There is some added value to the raw data of an exchange. Essentially, the provider will apply filters to the data thus removing possible misprints to make sure that the data is actually correct. Besides, the data has to be collected and stored using some IT infrastructure which you have to pay for. This is particularly important for tick data and you can see pretty quickly that you wouldn't be able to manage live ticks if you do not have yourself a huge IT department ready to handle this. You also pay for the way data is delivered to you; setting up a real-time push service to deliver data does cost money.

So, you actually pay for the services of the data providers and because setting up an exchange would not be possible without charging fees (you pay the existence of the exchange).

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Exchanges are becoming increasingly for profit enterprises and cost of technology and infrastructure to support the vast amount of data generated needs to be covered.

If you look at the financials of NYSE you see data related services does not generate much revenue, perhaps just to cover the cost of providing the services though more detail analysis on this is needed.

So nominal fees to coves part of the technology costs is justifies and is needed in the business sense.

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