Equity Market Structure Modernization: Are Competing SIPs a Good Idea?
The SEC just adopted new rules to modernize the infrastructure for the collection, consolidation, and dissemination of market data for exchange-listed national market system stocks (“NMS market data”).
This ruling will now allow execution venues to become securities information processors ("SIPs"), creating competition for equity market data.
The competing SIP rule making will now increase the depth of book data beyond the current top quote level requirements to 5 quote levels. Additionally, it will provide for the inclusion of quote information on odd-lot securities and certain information for opening and closing auctions.
However, in a highly fragmented industry with escalating technology, communications and compliance costs, the razor-thin margins will only get worse.
Those trading venues that believe they can add more value (stickiness) to their offering will have to incur a heavy tech lift to develop/deploy/maintain a fairly bullet proof market data ticker plant, and manage the connectivity to those who want their data.
And this new service will likely fall under the SEC's Reg. SCI regime, adding additional compliance and audit costs.
Here is the link to the SEC's recent (12/09/20) announcement:
How many new SIPs might be created? What do you think? Drop us a line and let us know/.