SIFMA Letter on Market Data with Study
Summary
SIFMA provided comments to the Securities and Exchange Commission (SEC) and includes study conducted by Professor Lawrence R. Glosten of Combia Business School to show that market data products from competing exchanges are complementary, which, based on well-established economic theory, naturally results in supra-monopoly prices. Accordingly, as supported by Professor Glosten’s analysis, the Commission should seriously question exchanges’ arguments that their market data products are priced reasonably and constrained by competitive forces, even if the Commission accounts for the theory of “Platform Competition.”
Excerpt
January 13, 2020
Via Electronic Mail ([email protected])
Ms. Vanessa Countryman
Secretary
U.S. Securities and Exchange Commission
100 F Street NE., Washington, DC 20549
Re: File No. 4-729: SIFMA Comment Letter on Market Data
Dear Ms. Countryman:
The Securities Industry and Financial Markets Association (“SIFMA”)1 submits this letter and the attached study conducted by Professor Lawrence R. Glosten of Columbia Business School2 to the U.S. Securities and Exchange Commission (“Commission”). The attached study shows that market data products from competing exchanges are complementary, which, based on well-established economic theory, naturally results in supra-monopoly prices. Accordingly, as supported by Professor Glosten’s analysis, the Commission should seriously question exchanges’ arguments that their market data products are priced reasonably and constrained by competitive forces, even if the Commission accounts for the theory of “Platform Competition.”
The attached study provides a clear explanation why we continue to see ever-increasing costs in market data.3 The cost of trading on an exchange typically remains reasonable due to competing exchanges offering substitute services. However, market data from one exchange is not a substitute for the market data from other exchanges. Each exchange has a de facto monopoly over its own market data. Additionally, these market data products are complementary because the ability of participants to evaluate the market, and therefore the utility and value of market data, increases with the addition of market data products from other exchanges. As shown in the attached paper, monopolistic competition with complementary goods leads to not only supra-competitive prices, but supra-monopoly prices.