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 The Securities Industry and Financial Markets Association (SIFMA)
recommended a number of sweeping changes to the "securities
information processors," or SIPs, which spit out the best quotations
and last sale price of stocks traded in the U.S. stock market.
SIFMA said neither the association nor its members had reviewed any
detailed proposal or analysis to make the SIPs more resilient after
one of them got clogged with quotes on August 22, halting Nasdaq
trading for three hours.
In a letter to the Securities and Exchange Commission, SIFMA said
broker-dealers and asset managers should be included in the SEC's
September order for the U.S. stock and options exchanges to draw up
plans to buttress the SIPs.
The SEC's mandate to the exchanges, known as self-regulatory
organizations, encompassed five broad issues, including proposed
kill switches for the exchanges that do not have them.
SIFMA's letter suggests a stand-off between the exchanges and
broker-dealers, who have long complained that while the trade data
the SIPs process comes from their customer orders, they share little
of the revenue enjoyed mostly by the exchanges, or SROs.
A source with knowledge of the talks over how to buttress the SIPs
blasted SIFMA for not engaging with the exchanges in a productive
manner, saying the association was whining and had lost credibility
over the issue.
"In terms of seeing a plan, they're right, they haven't seen a
complete plan, but they've seen alternatives," said the source, who
is not part of the broker-dealer or exchange community. "They just
hate the exchanges."
Nasdaq, a unit of Nasdaq OMX Group Inc, and the New York Stock
Exchange, part of IntercontinentalExchange Group Inc, control the
SIPs for the U.S. stock market and take the lion's share of their
revenue.
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The Nasdaq outage is a symptom of an outdated system designed more
than 30 years ago, SIFMA said.
"The current system suffers from a lack of transparency and
competition, questions of underfunding and insulated governance,"
the SIFMA letter to the SEC said.
"We believe the time is ripe for reconsidering how the SIPs are
governed, controlled and operate under the Commission's oversight,"
it said.
SIFMA also said the SIPs represented conflicts of interest, and
recommended the processors provide more quotations away from the
"best bid and offer," a move that would eat into the highly
profitable proprietary data the exchanges sell.
The SROs said in November that they had established a "pathway" for
identifying contingency plans for critical infrastructure, the
so-called "single points of failure" in the market, such as the SIPs,
that make trading vulnerable to massive disruption.
But their communiqué indicated reaching a solution to fortify the
SIPs was months away, if not longer.
[By Herbert Lash © 2013 Thomson Reuters. All
rights reserved.]
(Editing by Dan Grebler and David Gregorio) Copyright 2013 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.
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