Opening Cross: Things That Go Bump in the Night


As our deadline for this week’s issue falls on Halloween, it should be no surprise that there are some downright spooky things sending shivers up the spines of market data professionals.

First, Thomson Reuters is retiring its once-flagship-now-legacy 3000 Xtra display, to complete the move to its Eikon next-generation terminal. The vendor also recently killed off Bridge Data Network—the Freddy Krueger of data (aka the feed that wouldn’t die)—to cut the cost of supporting legacy data infrastructures. And with those legacy retirements, the vendor is also eliminating several thousand jobs in a move that will doubtless leave other staff checking under their beds for the boogeyman from the HR department.

Meanwhile, Mercury being in retrograde may have contributed to more technical glitches for exchanges last week, with Nasdaq halting some options trading after problems with dissemination of its index data feed, and the International Securities Exchange’s prices being excluded from the Options Price Reporting Authority’s national best bid and offer feed.

Exchange officials are always quick to point out that the amount of downtime from events like these each year is tiny compared to the vast majority of time when exchange systems purr smoothly along, and that few other industries can claim the same level of success.

However, other industries that fall short risk customers moving elsewhere—for example, if my cell phone provider keeps dropping calls, I can switch to another, or if the subway is always late, I can take a different line or get a bus instead (in theory)—whereas exchanges can generally feel secure that if someone wants to trade stocks listed in their domestic market, they have to trade on the exchange. Even in markets with multiple places of listing for the same stocks, firms generally feel obliged to participate in all or most exchanges to ensure best execution or arbitrage between exchanges. And many of those firms feel that exchanges exploit this situation to increase prices without fear of firms walking away in protest, with many also saying that exchanges have been hiking data fees to make up for lower transaction revenues—especially in the lower-volume periods during and after the financial crisis.

Nasdaq OMX’s third-quarter financial results bear out this trend, with information services revenue overall rising almost 19 percent over last year to $118 million, and within that figure, market data rising by $16 million to $100 million in total for the quarter, as a result of audit collections and revenues from Nasdaq’s eSpeed acquisition, among other initiatives, while equities and derivatives trading revenues slipped by $1 million each.

But elsewhere, it was a different story: At the Chicago Board Options Exchange, Q3 transaction fees rose by more than $6 million to almost $93 million, while data revenues were mixed, with Q3 revenue rising but revenue for the nine months ended Sept. 30 dropping. And at Spanish exchange group BME, equities trading volumes and revenues rose, while market data revenues fell by more than 5 percent over Q3 2012.

It’s unlikely that we’ll see market data fees decline, even if trading volumes and revenues fully recover—in fact, with more trading, venues typically argue that their data commands greater value—but exchanges may feel less pressure to raise them quite as much if trading delivers sufficient revenues. But if not, remember remember what follows Halloween—the fifth of November, when we commemorate Guy Fawkes’ attempt to blow up the UK parliament: if the mood among the populace is right, an upstart can shake up the establishment. So if venues try to abuse their power, there’s no shortage of others eager to fill the gap, such as the new Asia-Pacific Stock Exchange, or BATS Global Markets, with its new low-cost data terminals, developed with Interactive Data. And a market with healthy competition is what will keep the big boys checking under their beds for things that go bump in the night.

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