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Nasdaq just backed away from a controversial data product

  • Nasdaq, the US exchange operator, filed to withdraw a controversial data product, according to a filing with the Securities and Exchange Commission.
  • Nasdaq Pathfinders helps clients monitor the buying and selling behaviour of market participants.
  • The exchange also requested to withdraw three other data products.

Nasdaq appears to be taking a step back in its foray into the world of big data.

The US exchange operator filed to withdraw four data products, including controversial Nasdaq Pathfinders, according to a filing with the Securities and Exchange Commission.

The exchange has come under fire for its data products including Nasdaq Pathfinders and another one yet to be approved called Intellicator.

Nasdaq faced opposition from a number of market participants, including startup exchange IEX and the Securities Industry and Financial Markets Association, a large organisation representing big trading firms. The objections are all basically around the idea that these products might give away information about large firms’ trading strategies.

Here’s a description of Pathfinders by Nasdaq in its filing:

“The product identifies bullish or bearish positions taken by three or more market participants over an extended period of time and captures the aggregate sentiment of this well-informed group by indicating the number of Pathfinders bullish versus bearish in a particular stock, as well as the ratio of shares bought versus sold.”

IEX called out Nasdaq Pathfinders, in a Medium post after Nasdaq proposed Intellicator.

“To minimise market impact, investors do everything they can to disguise their intentions – including breaking up large orders into smaller ones so they aren’t obviously coming from a large investor,” IEX said. “Pathfinders directly undermines those efforts.”

Nasdaq said in a filing that it requested to withdraw the products because of feedback from the marketplace and a number of other factors. Here’s the exchange:

“As a result of an ongoing review of its product offerings, the Exchange has elected to withdraw these products due to the evolution of the market, including the competitive forces of operating an Exchange, market feedback, and the advancement of market structure since the products were introduced.”

Data has quickly become an important area of profit for exchanges and a point of contention on Wall Street.

Big traders have long accused Nasdaq and its rival, the New York Stock Exchange, for unfairly spiking the cost of their proprietary market data, which market-makers claim is essential to competing in the trading business.

Revenues brought in from data have increased for Nasdaq from $US337 million in 2012 to $US427 million in 2016, according to the exchange. Nasdaq was putting more capital behind data products, its updated strategy said.

Investors have responded positively to the move, with Nasdaq’s stock up more than 18% this year.

MI

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