Asset managers’ ability to make key trading decision would be boosted with improved technology and governance around critical market infrastructure – the securities information processor (SIP) – which is currently subject to an exchange-led review.
In the wake of the 22 August SIP outage that caused a three-hour trading break on Nasdaq and subsequent Securities and Exchange Commission-led talks with self regulatory organisations (SROs) including top US exchanges, the current state of SIPs has been called into question.
SIPs are the mechanism by which exchange market data is collated and disseminated to the public, and are operated by the country’s two leading exchange operators, Nasdaq OMX and the New York Stock Exchange, now owned by IntercontinentalExchange.
Richard Chmiel, SVP global sales and marketing for OneMarketData-owned firm OneTick, believes improvements to the speed, resiliency and governance of SIPs would benefit the market as a whole and asset managers in particular.
“Brokers and high-frequency trading firms rely on direct data feeds from exchanges, but long-only institutional investors rely on the SIP,” he said.
“The SIP is an important recording and forms the basis for NYSE’s Trades and Quotes product, which is used by the buy-side for compliance to question filled trades,” he said.
Although broker algorithms rely on faster, direct exchange feeds to execute buy-side orders, an overhaul of SIP technology would give more accurate trade data for the buy-side as SIPs currently only print trades in milliseconds, while other market data services record trades in nanoseconds.
“If rewritten on more current technology, the SIP footprint could be shrunk and the capabilities improved – time stamping [of trades] being one capability.”
The governance of SIPs as a key market infrastructure has also come under increased pressure. Last week, the Securities Industry and Financial Markets Association (SIFMA) called upon the SEC to include input from the broker-dealer community and asset managers to form the basis for a wholesale approach to SIP reform.
“We believe the SROs should fully integrate the broker-dealer and investment community into their workstreams associated with [the SEC] request for review, as we believe such collaboration will greatly benefit and enhance the proposals that will be subsequently developed,” the letter, authored by Theodore Lazo, managing director and associate senior council senior counsel for SIFMA, read.
SIFMA called upon the Commission to support greater transparency around SIP operations and functionality to avoid possible conflicts of interest from exchanges whose profits include non-SIP, direct market data services. In particular, SIFMA called for independent representatives from brokers, buy-side firms and the public to have voting power on the operational committees of SROs.
In September, SEC chair Mary Jo White brought together exchange chiefs after Nasdaq’s SIP outage and a 12 November statement from exchanges involved outlined the broad aims of any review to SIPs alongside other market structure changes, but did not feature any concrete suggestions.
Last month, Securities Traders Association president and CEO Jim Toes expressed doubts that SIPs could meet the new responsibility under the limit up-limit down measures created in the wake of the May 2010 flash crash. Under LULD, the SIP is responsible for intra-day calculations of price bands, which Toes believed could increase the propensity for future SIP failures.
“We are very concerned about the [August] outage at Nasdaq, but of more concern is SIPs’ new role,” he told theTRADEnews.com. “There will be a lot of publicly traded securities, a lot of information, a number of calculations, and then that all has to be disseminated to the public.”