U.S. Brokers Face Big Rise in Exchange Fees Thanks to SEC RulingDave Michaels and Sam Mamudi
Wall Street brokers are facing a big jump in the fees they pay to stock exchanges for trading data -- and have the U.S. Securities and Exchange Commission to blame for it.
In a little-noticed letter issued last week, the SEC said brokers can’t rely on snapshots provided by a single exchange when quoting equity prices to clients. Instead, brokers have to scan the entire market for the best prices, which would require them to fork over millions more to exchanges that sell market data.
The SEC’s opinion could hurt brokers’ ability to rely on slimmed-down data feeds to adhere to rules that require they provide clients with the best bid on stock trades. Nasdaq OMX Group Inc., for instance, has aggressively marketed a product called Nasdaq Basic that allows brokers to quote only the best prices on the Nasdaq Stock Exchange, rather than paying to see the prices offered on every other market.
“Nasdaq has been selling Basic as a replacement” for the consolidated tape, said Christopher Nagy, a former TD Ameritrade Holding Corp. executive who is now an analyst and consultant at KOR Group LLC. “The implications for this applies directly to Nasdaq Basic.”
Brokers including Charles Schwab Corp. have complained for years that stock exchanges charge exorbitant prices for market data that comes from orders received from brokers in the first place. In response, exchanges have offered cheaper price feeds that show only the best prices on a single venue.
Erin Montgomery, a Schwab spokeswoman, said in an e-mail that the company’s use of Nasdaq Basic is “limited, and we don’t have concerns about the impact of the letter.”
Nasdaq has marketed its mini-feed since 2009. A Nasdaq website says Basic has saved brokers nearly $100 million in market-data fees over the past six years. It makes the company about $26 million in annual revenue, according to a person familiar with the matter who asked not to be identified because the figure isn’t publicly disclosed. Nasdaq had $3.5 billion of revenue in 2014.
Nasdaq spokesman Joe Christinat declined to comment.
The SEC’s letter was written in response to Bats Global Markets, which had sought permission to sell a product that is similar to Basic. Bats said its new product would have shown about 20 percent of total daily market volume. Brokers couldn’t rely on Bats’s feed because it didn’t show enough of the market, the SEC wrote.
Brokers who used the slimmed-down feed could be in violation of SEC rules, the regulator wrote.
Bats spokesman Randy Williams declined to comment.
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