- Traders have long griped about the cost of accessing exchanges’ proprietary data, but they’re overlooking key facts says Ed Knight, Nasdaq’s General Counsel.
- In this op-ed, Knight says exchange innovation has actually democratized data and costs have only increased for traders because they have more options and products to use.
We operate in a world that relies on myriad technological innovations fueled by instantaneous access to a world of data. We rely on modern technology to manage the global airways and complex life-and-death medical procedures; markets should benefit from the same technological advances borne of competition and innovation. We expect competitors to outdo each other and for new entrants to disrupt entire industries. That is certainly what’s happened on Wall Street, to the great benefit of the investing public.
Not everyone is happy.
Our friends at a handful of the largest Wall Street firms and their trade association, the Securities Industry and Financial Markets Association (SIFMA), are rehashing years-old and long-settled claims that stock exchanges unfairly profit from the sale of market data. They argue this results in higher costs that hurt investors without offering any evidence, and call on the government to intervene.
The reality is advances in market data and analytics—highly curated information that gives professional traders a full view of the markets down to a few millionths of a second—are a major enabler of financial services innovation and lower costs for investors. Information has always been the lifeblood of well-functioning markets, more so today than ever before. Indeed, data-driven innovations powered by continuous technology investments have driven down the fees investors pay for stocks, mutual funds, and ETFs to a fraction of what they were less than a decade ago. In fact, without market data the ETF markets would simply not exist. The typical investor can now access analytical tools and trading data for free or at very low cost, and these innovations also increase the access of millions of households and businesses to sophisticated retirement saving services and investment advice. Trillions of dollars are invested in these exchange-traded products, and they were built on the foundation of innovative market data.
The United States also enjoys the lowest trading costs on earth. A global cost review conducted last year by ITG calculated that the costs of trading in the U.S. are about half of what Canadian investors pay. Our markets are clearly a crown jewel of the global economy.
Nasdaq and other exchanges have invested billions of dollars not only to ensure we have the most reliable and efficient financial market infrastructure in the world and highest levels of regulatory compliance, but also to use technology to help investors and entrepreneurs succeed in today’s global marketplace. Data products have fueled dozens of fintech startups that are democratizing the market and increasing access for ordinary investors. They are creating new services and jobs, and disrupting the bigger players, forcing them to adopt innovative, lower priced models.
If you’re a broker-dealer, hedge fund, or institutional asset manager, you might be spending more money than you used to on data—there’s simply more and better data to buy, and you need it to stay ahead of competitors. We see the same phenomenon in other industries where more choice allows some users to lower their costs and “cut the cord” while other consumers opt for receiving all the media and entertainment choices from cable to streaming.
Don’t be fooled: this is not an issue for the average investor, who usually get stock data for free, or even for the vast majority of market participants. For example, broker-dealers can use a standard low-cost, heavily regulated market data feed that contains information pooled by all the stock exchanges to get their customers the “best execution” price on every trade. Competition has made this data free to millions of investors.
The truth is regulated exchanges are subject to intense competition and our clients have lots of leverage to deploy in keeping their costs down. We are hardly the only game in town. The U.S. Securities & Exchange Commission has already settled this quarrel in favor of healthy market forces and unrestrained competition among exchanges and other market data providers. After lengthy litigation and deliberation, an SEC court rejected the arguments of SIFMA again in 2016 and reaffirmed that decision just a few weeks ago.
Markets are stronger when we use innovation to level the playing field for all investors. This belief is at the core of Nasdaq’s public mission as a self-regulatory organization. The intensely competitive market data economy advances that mission and adds to public confidence in our capital markets.
Edward S. Knight has served as Nasdaq’s General Counsel since 2001 and Chief Regulatory Officer since 2006 Mr. Knight is the former General Counsel of the U.S. Treasury.
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