IEX says stock exchanges should disclose more on data revenue

By John McCrank

NEW YORK (Reuters) - Regulators should require stock exchanges to disclose more about the money they earn from market data sales to help shed light on rising industry costs and potential conflicts of interest, an executive at exchange operator IEX Group said on Wednesday.

The cost of market data has long been a contentious issue within the trading industry and more public information about how much exchanges earn from specific data products would help inform the debate, John Ramsay, chief market policy officer at IEX, said in a blog post. (http://bit.ly/2tun8uv)

IEX, which launched the Investors Exchange last August, does not charge for market data or access to its exchange.

The U.S. Securities and Exchange Commission proposed in 2004 making exchanges break down, item by item, their revenue from market information, including data feeds. But it never acted on the idea, said Ramsay, a former head of the regulator's trading and markets division.

The SEC declined to comment.

At the time, the focus was on the public data feeds that aggregate all of the best prices and last sale information across exchanges.

Since then, automated trading strategies that rely on market data have come to dominate the market. Exchanges have responded with faster proprietary data feeds that provide more granular trading information than the slower public feeds.

Critics argue that exchanges favor the more lucrative private data feeds over the public feeds. They also say they have no way to challenge price increases from the exchanges, which create a barrier for new entrants to the industry.

"Exchanges are extremely competitive businesses and market data is only one area where we compete," said a spokesman for Nasdaq Inc (NASDAQ: NDAQ), who pointed to a 2016 court ruling that found exchange data was fairly and competitively priced.

CBOE Holdings Inc (NASDAQ: CBOE) and Intercontinental Exchange Inc's (NYSE: ICE) New York Stock Exchange declined to comment.

Exchanges have also argued that overall costs are going up because the amount of data and data products available has exploded and that actual price increases have been minimal.

Exchanges do provide information on market data revenue in financial statements, but it is not uniformly reported and is often lumped together with other services and products.

Disclosing revenue for each data product would let impartial observers evaluate how the composition of that revenue has changed over time, how the trends compare across exchanges, and whether the numbers are consistent with a well-functioning competitive market, Ramsay said.

(Editing by Matthew Lewis)

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