New legislation is intensifying an old fight between two powerful forces on Wall Street: stock exchanges and brokers. So far, the brokers seem to be winning this battle.
A bipartisan bill under development in Washington would weaken stock exchanges’ grip on a key part of trading: the data feeds that provide the backbone of the market. Brokers complain exchanges have abused their control of the services to pad their revenues. If passed, the legislation would give brokers a greater voice in overseeing those information sources and other critical features of the stock market.
“The notion that only exchanges should have a say in their governance is flawed,” said Jamie Selway, managing director at Investment Technology Group Inc., a New York-based brokerage.
Data feeds have been a particular flash point. Critics assert the feeds -- known as securities information processors, or SIPs -- are too slow. Brokers argue that giving for-profit exchanges an exclusive role in overseeing them sets up a conflict of interest: the SIPs are left to languish while exchanges charge rapidly increasing prices for faster data sources that they sell. Exchanges say brokers’ views are already adequately represented.
Representatives Robert Hurt, a Republican from Virginia, and Brad Sherman, a Democrat from California, are sponsoring the legislation.
‘Public Utilities’
“This bill will simply allow the broker-dealers, the exchanges’ customers, to have a voice,” Sherman said in an e-mailed statement. “Public utilities should always consider the views of its customers.”
Currently, exchanges including the New York Stock Exchange and Nasdaq Stock Market govern the data feeds and other aspects of the so-called national market system, and they’re fighting to preserve the status quo.
Spokesman for Sherman and Hurt declined to comment on when the legislation would be introduced. There’s no guarantee the legislation will become law, but momentum on Capitol Hill signals a victory for banks who have been fighting for years to cap their spending on market data. At stake is hundreds of millions in annual revenue the exchanges generate from charging fees for this information, as well as control over some of the most important aspects of the U.S. stock market.
“Market-data disputes go back to the early days of when the exchanges began,” said Jim Overdahl, a former economist at the Securities and Exchange Commission who is now a partner at the government affairs firm Delta Strategy Group. “This is just a new strategy of dealing with those issues. The exchanges are playing hard, the firms that use their data are playing hard.”