The following oped was originally published in Real Clear Markets on January 31, 2019.

Over the last three decades, the costs associated with investing in stocks have declined dramatically, expanding opportunities and improving returns for investors. This reduction is the byproduct of regulatory and technological evolution. But there is one glaring outlier: the fees that exchanges charge for market data on current stock prices, recent trades, and supply-and-demand levels, all essential components to equity market investing.

To address these fees, the Securities Industry and Financial Markets Association (SIFMA) brought an action against the exchanges on behalf of hundreds of securities firms that serve millions of retail and institutional investors. Recently, the U.S. Securities and Exchange Commission (SEC) handed down a major decision in that action, blocking exchange fee increases for critical market data products. The SEC’s decision was a victory for the entire investing community, putting the spotlight on the inequitable, increasing cost of market data and the corresponding negative impact on everyday investors. The SEC’s significant ruling underscores the need for substantive reform of our equity market system.

National securities exchanges sell data on current stock prices, recent trades, and supply-and-demand levels. Access to this market data is essential to America’s world-leading capital markets because all participants need timely and complete data to make informed decisions for all customers. But under our current legal and regulatory construct, the for-profit exchanges exclusively control the distribution and sale of market data, which has led to unchecked fee increases over the past two decades. As a result, all investors pay higher trading costs because of the unnecessarily high prices for market data.

 

The cost of investing is going down but there is one glaring outlier: fees for market data.

 

SIFMA, along with other advocates for market transparency, have long argued that these fee increases are inconsistent with the exchanges’ actual costs in collecting and distributing market data and thus constitute an excessive mark-up over cost. Each exchange has control over its unique market data, and they all should charge fair and reasonable prices for that data, consistent with their statutory obligations. However, it has become clear that excessive pricing will continue unabated unless regulators strictly enforce exchanges’ compliance with these legal requirements.

A recent survey of SIFMA members shows that one exchange has used various types of fee changes to increase the cost of its proprietary market data products by more than 1,100 percent over the last eight years. For individual firms, the prices increased anywhere from 967 percent to 2,916 percent or more, just to get the same data in 2018 that they were getting in 2010.

One Exchange’s Fees Increased By 1,100% Between 2010 And 2017
Proprietary Data Fees Of One Exchange From 2010 To 2017

The only alternatives to exchange data products are market data utilities known as the Securities Information Processors, or “SIPs,” which provide basic market data to investors at prices lower than those for exchanges’ proprietary data. However, SIP fees have also increased substantially without transparency or market justification. And the SIPs are operated and controlled by the same exchanges that sell their own better, faster market data products. This clear conflict of interest raises concerns that the SIPs will never be able to provide a competitive alternative to so-called premium data feeds.

In October 2018, the SEC unanimously ruled against two exchanges in a long-running case over market data fees, finding the exchanges have not adequately justified the price increases. SEC Commissioner Robert Jackson noted that the “decision is a victory for ordinary investors in our stock markets—who have, for too long, been paying steep costs for an uneven playing field… competitive forces, rather than market power, must justify any increase in the price exchanges charge for stock market data.”

However, the issues surrounding market data fees are far from solved. Regulators must continue to examine and address unreasonable market data fees, quality and operation of SIPs, and competition between utility and proprietary market data feeds. It is critical that we continue to strive for transparency in our markets and ensure that all investors have access to the information they need to make crucial investment decisions. Market data is a key part of successful markets, and as an industry we have consistently maintained that market data must be timely, comprehensive, non-discriminatory, and accessible to all market participants at a reasonable cost.

Kenneth E. Bentsen Jr. is president and CEO of SIFMA, the voice of the nation’s securities industry. He is also chairman of the Global Financial Markets Association (GFMA), of which SIFMA is the U.S. regional member.

For more information about market data fees, visit Project Invested; to see SIFMA’s filings and studies, visit our Market Data Resource Center.