This study conducts an economic analysis of the supply and demand of securities market data sold by exchanges in the United States and finds that two exchanges each have dominant positions in distinct portions of the market with the opportunity to exert monopoly pricing power. Quantitative analysis of available economic data, including measured market shares and concentrations well in excess of standards set by the United States Department of Justice (“DOJ”), shows that the New York Stock Exchange (NYSE) enjoys a dominant market in individual NYSE-listed securities and the NASDAQ Stock Market (NASDAQ) enjoys a dominant market in NASDAQ-listed securities, and provides strong empirical support for the assertion that the two dominant exchanges are exploiting the opportunity to exert monopoly pricing power in a manner predicted by economic theory. The presence of strong network externalities, public statements and financial disclosures by the exchanges, and other factors provide additional support. The two dominant exchanges are exercising monopoly pricing power by charging broker dealers and the investing public fees for depth-of-book data that are significantly higher than the relevant costs associated with distributing the data. Therefore, the United States Securities and Exchange Commission (“SEC” or “Commission”), which is required by Congressional statute to assure that securities market data distributed by exchanges is made available on “fair and reasonable terms,” cannot reasonably rely on competitive forces to result in competitive prices for exchange market data sold by the two dominant exchanges.
See related comment letter calling the Securities and Exchange Commission (SEC) proposed order on market data fees “fatally flawed” and unveiled a related study to support that contention. By law, financial firms are required to provide trading data to exchanges at no cost and then buy back the consolidated market data from the exchanges. The Exchange Act requires the SEC to review associated fees to ensure they are “fair” and “reasonable.”