Real-Time Market Data Feed Use Rising as the Consolidated Tape Found Insufficient for Best Execution, TABB Says

NEW YORK & LONDON -- (BUSINESS WIRE) -- According to TABB Group’s new research report, “Real-Time Market Data: Circus of the Absurd,” the consolidated tape is no longer sufficient to satisfy best execution requirements, leading to an increase in the use of real-time market data (RTMD) feeds through the 13 market centers where US equities and equity-linked products are traded.

Everyone purchases the consolidated tape but no one uses it, which is absurd unto itself, says Paul Rowady, TABB senior analyst and report author. “It’s why real-time market data is becoming a much more integral part of exchange business models, for some, one of the few areas of revenue growth. It’s also put RTMD at the epicenter of the debate about what to do next.”

But the existence and competition for tape revenue in today’s high-speed marketplace has raised complaints, in that it’s too slow for market makers who need to satisfy their “best execution” obligations without simultaneously consuming mass amounts of real-time market data directly from exchanges. “Now that average trade sizes are so small and bid-offer spreads so thin, the inside quote is of little value in determining short-term market dynamics. And without full depth-of-book (DOB) data sourced directly from the exchanges, market makers tell us that they aren’t able to successfully, or profitably, navigate this rapidly shape-shifting marketplace.”

Equally relevant, RTMD also draws complaints. “RTMD costs aren’t equitably borne by all market participants when taking into account the nature of how that data’s used, different technologies deployed and how this data’s important to each user’s model.”

The 24-page, 10-exhibit report examines flaws in US equity market structure embedded in the way real-time market data is handled. It details how tape revenue has been used to establish aggressive maker-taker pricing models, disparities of these models among various exchanges and how the ongoing market of trade automation and increasingly high speeds is imposing additional costs on all users, not merely power users. It also explores new initiatives that can be undertaken to rectify these challenges.

One of the challenges for change, however, is that some exchanges charge for access to their proprietary order book feeds, but others do not, so there are different economic incentives on how the exchanges approach any fix to the interplay between RTMD and market structure. Either way, liquidity provisioning in the US equity markets requires the purchase of the consolidated tape and proprietary feeds, plus the infrastructure necessary to manage it as data message rates skyrocket.

“No matter whether you’re ‘eyeballing’ DOB data or feeding it into multi-core servers,” says Rowady, “everyone needs the right infrastructure to access and manage this data, but the tape’s pricing model hasn’t been updated to reflect new usage patterns or new access technologies since the mid-1970s. It seems crazy, but true. In many cases this pricing model still treats computers and individuals the same.”

The report is available for download by TABB Research Equity Alliance clients and pre-qualified media at https://www.tabbgroup.com/Login.aspx. For an executive summary or to purchase the report, visit http://www.tabbgroup.com or write to info@tabbgroup.com.

About TABB Group

TABB Group is the financial industry’s only strategic advisory and research firm focused solely on capital markets, based on the proven interview-based research methodology of “first-person knowledge” developed by founder Larry Tabb. For more information, visit www.tabbgroup.com. In January 2010, TABB launched TabbFORUM, the online capital markets community covering opinions and analyses on current industry issues.