- KCG says U.S. stock market's benchmark data feed is sluggish
- Wall Street regulator recently drew attention to data speeds
To one of the U.S. stock market’s biggest traders, the decades-old central system that broadcasts prices to investors is sluggish and should be replaced.
That conclusion, from a KCG Holdings Inc. report released Monday, echoes calls from other traders to overhaul the way information is collected and distributed in the market. The object of KCG’s scorn is the consolidated data feed known as the SIP, which collects and redistributes prices from 12 stock exchanges and dozens of alternative venues. The most sophisticated traders shun it, instead basing trading decisions on faster sources bought directly from exchanges.
“The SIP is the slowest data feed in the market,” Phil Mackintosh, head of trading strategy and analysis at KCG, said in an interview. “It’s always going to be.”
Short for “securities information processor,” the SIP has been the industry benchmark since the 1970s. Because it takes time to collate and report data from every trading platform, the SIP gives a slower view of trading than the so-called direct feeds offered by exchanges.
KCG’s proposed solution: Let independent companies compete on bundling up and selling market information from the direct feeds, drastically reducing the importance of the SIP. The Securities Industry and Financial Markets Association, a trade group for banks and brokers, has promoted a similar idea.
The U.S. stock market relies on SIP feeds run by New York Stock Exchange owner Intercontinental Exchange Inc. and Nasdaq Inc. One shows the market’s best bid and offer prices for NYSE-listed stocks, another does the same for Nasdaq-listed securities.
The Financial Industry Regulatory Authority, Wall Street’s self-regulator, recently nudged firms to take note of data speed discrepancies. Brokers using the direct feeds for their own trading should do the same for their clients’ orders, instead of relying on the SIP, Finra said in a regulatory notice in November.
“This is an interesting regulatory shift -- that seems to legitimize the fact that slower data leads to worse fills and stale limit prices,” the KCG report said of Finra’s guidance.
Brokers have already been contending with the SIP’s shortcomings. Last year, Bloomberg News reported that Goldman Sachs Group Inc. was upgrading its Sigma X dark pool to use direct exchange feeds as its primary source of price data, part of a larger push to make the firm a top player in the automated trading arena. It had previously been using the SIP.