The Depository Trust & Clearing Corporation (DTCC) will suspend its Investor Kinetics data service on 31 July, following ongoing concerns from clients and industry participants about information leakage from the service, The TRADE can reveal.
On Tuesday, 6 June, DTCC had a meeting with US buy-side clients to announce that it would discontinue Investor Kinetics, sources familiar with the matter told The TRADE.
The move comes after institutional brokerage firm Themis Trading suggested in a whitepaper that the DTCC is “leaking sensitive trading data” via its data feeds Equity Kinetics and Investor Kinetics.
“We stand firm in our position that our data products offer valuable and appropriate transparency into market activity without revealing confidential trading information. All data included in DTCC’s Kinetics line of products, including Investor Kinetics, is anonymised and/or aggregated and shared on a delayed basis,” disputed Tim Keady, managing director and chief client officer at DTCC, in a statement given to The TRADE.
Themis Trading’s whitepaper noted that DTCC’s data feeds provide an indication of market activity, such as what firms are the predominant buyers and sellers in individual stocks, based on activity at the clearinghouse (DTCC).
DTCC’s data feeds, including Investor Kinetics, could potentially be used as inputs for computerised trading strategies, providing signals to programs on when to buy or sell stocks, according to Themis’ whitepaper.
Buy-side traders have expressed concerns that these data feeds could expose when their firms are buying or selling stocks, which could leave firms vulnerable to sophisticated trading firms receiving information that specific transactions – which could take several days or weeks – were under way.
DTCC’s Investor Kinetics offers data on the trading volume and the number of transactions carried out by asset managers, hedge funds and retail wealth managers, three days after the execution of said trades. Meanwhile, DTCC’s Equity Kinetics offers daily summaries of trading volume at the 10 most active brokerages in various stocks, including buying, selling and short selling.
In Themis Trading’s whitepaper, it stated that in combination, the data feeds could expose whether a small number of firms are responsible for most of the activity related to a specific stock or whether hedge funds are shorting a stock. Themis Trading notes that DTCC’s data feeds, used together with other sources, could expose what market participants are doing.
“DTCC has engaged third party advisors, including data scientists and other domain experts, to independently verify the effectiveness of these data protections,” added Keady.
“However, we recognise that the availability, accessibility and use of market data has been an intensely debated topic in recent years. In response to ongoing client and industry concerns centred around the Investor Kinetics service, we have decided to suspend Investor Kinetics indefinitely, effective on July 31, 2023. We strongly believe that ensuring access to cross-asset market information, while maintaining confidentiality and trust of clients, supports a more efficient and resilient marketplace. Data has, and will continue to have, an important role in the industry, including for the investor community. To that end, we will continue to engage with clients, regulators and the industry on our approach to data products.”