At the New York Stock Exchange, we put a great deal of effort into our role operating the Securities Information Processor (SIP), which links U.S. markets by processing and consolidating all protected bid/ask quotes and trades from every trading venue into a single, easily consumed data feed. Last Monday's processing issue highlighted the importance of the SIP, but also how varied its usage is amongst market participants.
We continue to work with the industry and the SIP Operating Committee on new designs to enhance the SIP's resiliency and speed. Since last October's SEC Roundtable on Market Data and Market Access, the NYSE has invested in two major technology projects that will improve the performance of the SIP:
These important upgrades will improve the delivery of SIP data.
We believe an equally important discussion needs to take place around the SIP product itself. As a one-size-fits-all offering, the SIP is too basic for some users and includes too much information for others.
The SIP, as currently configured, provides a basket of data: trades executed, each exchange's best bid and offer quotes, a calculated NBBO, and regulatory messages. Subscribers pay different rates for the product based on whether the individual viewing the data is deemed a "professional" or "non-professional" user. This is a policy that has provided steep discounts for Main Street investors, but has created complex administrative burdens for brokers.
Additionally, many institutional buy and sell side traders say that the data included in the SIP is insufficient for their purposes, but the content that they want included may be overkill for retail applications. For example, investors looking at their smartphones for the price of a stock likely don't require separate quotes from multiple exchanges. They just need the best possible price available across all exchanges.
Instead of providing the same product to everyone, and charging different fees based on whether subscribers are "professional" or "non-professional," the NYSE proposes to replace the legacy SIP feed with three new tiered levels of service. These tiers would be designed for the unique needs of specific types of investors. Importantly, subscriber fees would be based on the product that is consumed, not who is consuming it.
We call the three new tiers of service SIP Essential, SIP Classic and SIP Premium.
SIP Essential »
This is designed for retail traders using a website or mobile device, and it includes market-wide best bid and offer data, trades executed, and basic regulatory messages such as halts. It will be offered at low cost for display purposes, such as viewing in an app. The data would be published in real-time, but in a technical format that does not facilitate high-speed trading.
SIP Classic »
This tier is designed for active traders, market professionals and certain automated trading systems. SIP Classic would include quotes and trades attributed by exchange, full regulatory messages, and could also carry recommended new data elements such as primary auction imbalance information and odd-lot quotes. SIP Classic would be offered at a mid-range price point.
SIP Premium »
This top-tier product is designed for active traders, market professionals and certain automated trading systems requiring not only best bid and offer data, but also certain "depth of book" information, i.e., the quantity available for purchase and sale at multiple price levels on each exchange. SIP Premium would include SIP Classic data as well as three levels of depth of book information and would be priced above SIP Classic.
We believe this approach will resolve two of the longstanding issues surrounding the SIP. First, SIP Essential would be a low-cost product that meets Main Street investor needs while addressing concerns among retail brokerage firms that classifying subscribers as "non-professional" or "professional" imposes undue administrative burdens. Second, SIP Premium would address concerns that the SIP's current content may be insufficient for institutional investors and active traders.
Some market participants will continue to choose to use the proprietary data feeds offered by each exchange for additional order-level transparency, but we expect that many others will choose SIP Premium for their display terminals and trading systems.
The addition of bid and offer data deeper in the order book on SIP Premium represents a major expansion of the SIP's mission, requiring support from numerous stakeholders, including the SEC. We recently shared this concept with the SIP's Market Data Subcommittee and plan to present the proposal to the full SIP Operating Committee at its upcoming quarterly session. We will continue to engage with the trading community, issuers and the SEC about how to most effectively serve the marketplace.
Reconstituting the SIP as a three-tiered product suite will better support industry needs, reduce the administrative burden on data subscribers and address concerns about the changing nature of core data in modern markets.
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