The New York Stock Exchange is fighting back in a fierce debate over the cost of accessing the market.
The war of words is the latest in a long-running battle over the cost of data, connectivity and colocation, and was triggered by the Big Board’s request to change the fees it charges for certain connectivity services.
Now, NYSE is returning fire, taking aim at some of its biggest customers.
In a letter to the regulator dated January 17, NYSE said that the questions raised in the Commission’s Order Instituting Proceedings are moot, as NYSE is no longer pushing ahead with the changes the Order was focused on.
It then goes further, targeting some of those who responded to the SEC’s call for feedback. The comment letters “frequently mistake the proposed connectivity fees, in particular the previously proposed Premium Connectivity Fee, for market data fees,” according to the letter. They are in fact connectivity fees, according to NYSE.
NYSE then takes aim at the question of whether these services are essential. This is at the heart of this long-running battle. The debate centres on whether these services are essential — some customers and rivals say they are, the exchanges say otherwise — and whether there is any competition in the market for that data.
“In addressing alternative access and connectivity options they concede are available, several comment letters erroneously equate ‘alternative’ with ‘equivalent,'” the NYSE letter said. It added:
“Simply put, the Act does not require that there be at least one third party option available that has exactly the same characteristics as a proposed service before a national securities exchange can impose or change a fee for a service. Indeed, such a requirement would be untenable, as every exchange would have to have an exact duplicate before it could charge a fee.”
“The alternatives offer distinct services and pricing structures that some Users may find more attractive than those proposed by the Exchange, and each User is free to conduct its own analysis of the relative benefits of those alternatives and choose whichever it deems most beneficial to it. Contrary to the IEX Letter, the fact that not every User will find the alternatives equally attractive does not mean that the alternatives are not real.”
It names Wolverine Trading, a proprietary trading firm which also has a broker-dealer arm, which said in its comment letter it is “required to subscribe to the lowest latency NYSE market data products and services.” NYSE disputed this. It said in the letter:
“Wolverine Letter then treats all its costs — including the optional cage surrounding its cabinets, power, cross connects, network ports and connectivity — as costs related to market access. However self-servingly it tries to characterise them, these listed costs, like rent and employee compensation and benefits, are simply costs associated with Wolverine’s business activities. These business activities and Wolverine’s business judgment — not the Exchange — determine the most effective way for Wolverine to select the products and services it uses”
It then names Citadel Securities, a firm which is responsible for 15% of US listed equity volume, and Bloomberg, the financial data giant, grouping them with Wolverine. Citadel sent a comment letter to the SEC (you can read about that here), while Bloomberg is part of SIFMA, which also sent a comment letter. It said:
“These firms have chosen to build business models based on speed. The Exchange finds it interesting that such firms and SIFMA object to exchange fees, which are subject to Commission review and the requirements of the Act, but by and large do not disclose how much profit they or their members make from being co-located and using exchange market data products.”