The system of data feeds that distribute American stock prices is “outdated” and needs improved oversight, transparency and backups, according to the group representing U.S. securities firms.
“In today’s markets, the current system suffers from a lack of transparency and competition, questions of underfunding and insulated governance,” Theodore R. Lazo, the Securities Industry and Financial Markets Association’s managing director and associate general counsel, told the U.S. Securities and Exchange Commission in a letter today. He said brokers and asset managers should be more involved with overseeing the feeds.
The importance of the feeds, known as securities information processors was emphasized on Aug. 22 when the SIP operated by Nasdaq OMX Group Inc. malfunctioned, preventing thousands of stocks from trading. That prompted SEC Chairman Mary Jo White to mandate that markets collaborate on making their technology and protocols more resilient.
The Aug. 22 outage “is a symptom of the outdated system by which critical market data –- the best bids, offers, and last sale prices in the equities markets –- is controlled and distributed,” Lazo said in today’s letter.
Sifma argued that a fresh review of the SIP system is warranted because the last evaluation happened when trade executions were measured in seconds. Now, with reaction times calculated in millionths of a second, “the time is ripe for reconsidering how the SIPs are governed, controlled and operate under the Commission’s oversight.”
Sifma suggested that the SEC inject competition by letting multiple providers distribute stock prices to the public, instead of just relying on Nasdaq and IntercontinentalExchange Group Inc. to disseminate data on exchange-listed U.S. stocks. Even though American equities change hands on more than 50 venues, Nasdaq’s Aug. 22 error prevented all trading of its listed companies because it runs the primary public feed for those shares.
Officials from brokerages and asset managers should sit on the committees that help oversee the Nasdaq and ICE feeds, Lazo said in today’s letter. Today, these committees are made up of representatives from exchange owners and the Financial Industry Regulatory Authority.
Sifma members would also like to see the operating committees reveal more information about the SIPs. There should be public disclosures of operations, accounting and technology, Lazo said.
“The fact that things have always been done a certain way doesn’t mean they have to be done that way forever,” Lazo said in a phone interview today.
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