Opening Cross: Market Data Shows its Fall Colors


As I write this, the leaves are turning brown, and a rainstorm is whipping through New York, signaling an end to summer and the start of autumn. Yet the change in weather brings a sense of renewal-the knowledge that the leaves will fall, the ground will freeze, and in almost no time, spring will rouse the trees from their dormant state.

And there are other signs of renewal sprouting in the world of market data. In this issue, we describe how the Chicago Board Options Exchange is refreshing the hardware that supports its ticker plant, and is gearing up to launch a new multicast top-of-book datafeed to clients, which will provide a consistent and capacity-efficient delivery mechanism for the exchange's data in preparation for anticipated rises in data traffic.

Not everyone loves multicast - sometimes called "spray and pray" - compared to TCP/IP's guaranteed messaging capabilities, but it can help reduce the time taken to deliver the same message to all recipients by sending it simultaneously rather than one after the other. For example, in last week's issue, Canadian exchange group CNSX Markets told IMD how, despite its fears about this particular issue, its clients wanted to retain TCP/IP, so the exchange turned to hardware messaging vendor Solace Systems to find other ways to accelerate its data distribution.

In this instance, CNSX was forced to pursue a more innovative approach to tackle its problems. But could other threatening storms deter exchanges and other industry participants from being innovative in future?

For example, will exchanges be less likely to develop market depth feeds until the courts have resolved a lawsuit brought by a company called IXO/Realtime Data against some of the biggest banks, exchanges and data vendors in the industry (IMD, Aug. 17, 2009). In case you'd forgotten about that, don't think it's gone away: In fact, IXO is stepping up its litigation efforts, last month filing suits against major US mobile telecom companies including Sprint, AT&T, T-Mobile and Metro PCS. Why would exchanges be worried by this? Because the patent leveled at the market data industry broadly covers data compression mechanisms - potentially including the bandwidth-reducing FAST Protocol, which has proved a godsend to exchanges capturing, processing and distributing ever-increasing volumes of market data (not to mention the consumers who receive it and trade on it), especially in the options markets, where data volumes are highest. If the patent is upheld, anyone using data compression - which is pretty much everyone now - could be subject to additional licensing fees to IXO. Alternatively, the industry would have to take a more innovative approach, and find another way to tackle rising volumes.

Another cloud on the horizon is NetCoalition's pressure on exchange data fees, which recently resulted in a court overturning the Securities and Exchange Commission's approval of fees for the New York Stock Exchange's ArcaBook depth feed, questioning how well the SEC had considered competitive forces when approving the price schedule.

The SEC may not want to become responsible for setting and justifying prices for exchange products based on detailed cost and market analysis, but will exchanges be less likely to innovate on product development if they can be second-guessed by courts or have their prices dictated by others?

Currently, NetCoalition is only targeting the "core data" it believes should be available to everyone. But, as the industry continues to innovate and renew itself, who's to say what will constitute "core data" when the markets return to full bloom, and what role courts and pressure groups will play in the future of market data?

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