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Give the Exchanges a break - someone needs to pay tax

Interesting to read Tim Cave's article at Financial News on trader's outcry over exchange fees. At the risk of alienating my IB and Hedge Fund clients, I think someone needs to standup for the exchanges.

The days of Dick Grasso style pay are gone, and exchanges are subject to more competition than ever before. At the same time their clients, or at least some of us, are becoming more demanding. This leads to a need for increasing investment in technology which needs to be paid for. If we, push for lower market data charges then we need to say where the ‘lost revenue’ will be raised. 

Exchange fees are like taxes; we want most of the services they pay for, no one enjoys paying them and all we can really ask is that they do not distort markets and that they seem fair. I don't think current market data fees are fair.

Segment the pricing feed - High latency feeds as a new source of revenue?

Exchanges seem to be coming round to the idea that web users should have reasonably live prices, for which they can not be charged. At the other end, high frequency/low latency traders are spending huge amounts on trading systems that actually can tell the difference between delays in microseconds and milliseconds. Stuck in the middle and paying the same market data fees are Traders, who often live with 200ms latency when getting data from Reuters or Bloomberg. This doesn't seem fair even when we look at the co-lo charges the lowest latency traders pay. Why not charge higher exchange fees on lowest latency feeds and reduce fees for a 100ms latency feed. It's not just about shifting charges to low latency traders, there are middle office and management staff who currently do not take real time data, but would be interested in paying for real time feeds with longer delays (5 seconds?).

If Exchanges provided a more segmented market data product, offering a much wider range of ‘more money for lower latency’, then clients could control their data costs and exchanges could raise more money by finding new users in banks for high latency but still real time fees.

And who knows, with more choice in data feed pricing we might might start to think that market data fees were fair, although I doubt we will ever enjoy paying them.

 

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