Are free real-time market data feeds, just a marketing technique?


#1

The recently-approved IEX exchange from US is providing its market data free of charge.

Since the ever rising cost of the market data is a contentious issue in the trading community, this should be a welcome development.
The question is, how long these data will remain free ?

Initially, BATS US exchange’s was also free of charge. In 2013, as soon as the exchange has captured sufficient market share, the charges were introduced, although to be fair, BATS pricing policy is still more
attractive in some aspects than NYSE’s and NASDAQ’s.

IEX’s market share is currently less than 2% - not insignificant, but still much behind the established exchanges.
Providing their market data for free might be a good marketing strategy for them, but it remains to be seen if they will continue to do so once their market share goes above 5%.


#2

Update: Brad Katsuyama, CEO of IEX is reported to have said that “IEX will never need to rely on charging for market data and connectivity”.

If he stays true to his word and IEX will succeed in capturing significant market share, his position may put pressure on other exchanges to do the same.
Over the last few years, as the volumes have been decreasing, exchanges have been raising their market data fee to keep their revenues stable. This has led to complaints form the trading firms, which cannot function properly without the market data and which see the exchanges as monopolists exploiting their positions. This is particularly true on the derivatives markets, when there is very little competition between exchanges.

New fund managers and other trading/investing start-ups (especially algo trading firms, which require large sets of data at the onset) often find the cost of data (both real-time or historical) prohibitive.This is acting as a major barrier to entry and might negatively affect the long-term liquidity in the markets.

The firms would definitely welcome a disruptor revolutionising the market data business.


#3

Meanwhile, the large incumbents that grow through M&A are increasing their prices.
Read in:

Check in


#4

Rising cost of data is counter-intuitive as transmission and storage costs are plummeting. Other associated costs like software required for processing can also be reduced dramatically by coalitions of open source contributors, similar e.g., to the hyperledger project from entities that have a joint stake in the quality of that data service.

From a risk management perspective democratizing market data access can only be a huge gain that will be shared by all market participants. Risks lurk in information lapses, aka “there are no black swans, only black boxes”. Data based risk management does have its limitations: it is a required not a sufficient condition. But that is a different sort of worry.

Its not all cost reduction. Once the data spigot is open, it enables new types of service provision on top of raw data. There are some parallels with the open data movement that focuses (mostly) on government produced data. Keeping costs artificially high hampers such innovation and delays the move to a better state of the world.

Finally there is a question of who’s data is it anyway, which has some analogies with the web scrapping controversy around banking data and API’s. What if a trading entity chooses to post their transaction data to a third party repository?

One thing is for sure, given the pace of technological change, any question around market data infrastructure, costs and access is far from settled!


#5

@m.trepka Do you know why IEX CEO can make that statement so confidently? If thry have a sustainsble advantage that is a big deal - then it is not just a temporary loss leader.


#6

I expect that being the 13th exchange in the US, IEX may need something else to differentate themselves from the pack, other than their main feature - the “speed bump”.

Even if it is just a marketing technique, it may actually prove very effective, providing of course that their market share will grow and that it will in fact be permenent.


#7

I don’t think the cost of market data is justified by the cost.
As with most software and SaaS solution, the marginal cost of supplying the data to additional client is close to zero (other then perhaps the bandwith cost).

The main reason the exchanges are increasing their charges is that these data are becoming increasingly important to the financial firms, especially all sorts of HFT and algo trading firms.

The exchanges are very good at segmenting the market, too. The cost to the private investors is usually very low, whereas the tick data used by black boxes are the most expensive.

There’s a multitude of vendors re-selling the market data and the pricing is far from transparent.


#8

m.trepka, I know these folks. The free real-time data is permanent. I personally guarantee it. There is some doubt in my mind, however, that they will survive. I discuss the subject here.


#9

Great insights from @ThinkTwice.

IEX isnt offering free real-time market data, as a marketing gimic. IEX is healthy competition in a market that needs change. @ThinkTwice calls for the SEC to take on that responsibility.
He thinks that the SEC should take ownership simply because all their NMS (National Market System) is plaguing the exchange (read details of its significant side-effects).


#10

IEX’s free real-time data is feeding Fintech apps.

Intrinio has partnered with IEX. This partnership allows Intrinio to offer real time stock prices without the redistribution fees and offers attractive pricing packages. For example, Intrinio’s new Stock screener on Excel (ISE) can be used for free for up to 500 daily data points and thereafter, plans start as low as $10 per month. Such services, can reduce substantially costs for investment bank boutiques, financial analysts, hedge funds etc.

Read more details in XBRL leading to better, cheaper, pay-as-you-consume Data & Metadata