“A firm that regularly accesses proprietary data feeds, in addition to the consolidated SIP feed, for its proprietary trading, would be expected to also be using these data feeds to determine the best market under prevailing market conditions when handling customer orders to meet its best execution obligations,” according to the Finra regulatory notice released in November.

Even before Finra’s public guidance, brokers were grappling with the shortcomings of the SIP. Earlier this year, Bloomberg News reported that Goldman Sachs Group Inc. was upgrading its Sigma X dark pool to use direct exchange feeds as the primary source of price data. Sigma X had been using the SIP.

Finra’s guidance will be a wake-up call for some brokers that have traditionally looked to the consolidated tape to judge whether a customer got the best price for their trade, said John Standerfer, chief technology officer of S3 Matching Technologies in Austin, Texas.

‘Everything Is Good’

“If you’re a firm that has the proprietary feeds, you can no longer execute and say, ‘Hey, I got you guys the SIP price, everything is good,’ which is how a lot of things have historically worked,” said Standerfer, whose firm helps brokers measure how well trades are executed.

Not every firm will need to buy the exchanges’ faster price feeds, Finra spokeswoman Nancy Condon said. Brokers who only use the consolidated tape don’t need to purchase the direct feeds, she said. “You can’t use an exchange feed to place your own orders and then a different feed for customers,” Condon said.

Finra’s notice comes as brokers and exchanges wage a years-long legal battle over the cost of market-data feeds, which generate hundreds of millions of dollars in revenue annually for stock exchanges. Brokers have sought to overturn the U.S. Securities and Exchange Commission’s determination that prices are competitive, seeking evidence that would show exchanges enjoy a monopoly on the sale of the information.

Finra’s statement on the faster feeds shows that exchanges don’t face any competitive restraint on market-data prices, the Securities Industry and Financial Markets Association said on Nov. 25 in a filing with the SEC. The Finra notice elevates the importance of direct feeds and keeps brokers at the mercy of exchanges on the price of their market data, Sifma said. (Bloomberg LP, the parent company of Bloomberg News, is a Sifma member and is involved in the case.)

‘Captive Customers’

Exchanges may “have more captive customers” for their direct feeds as a result of Finra’s notice, said Jamil Nazarali, head of execution services at Citadel Securities, one of Sifma’s member brokers.