Use of Consolidated Tape Now 'Absurd'
February 2, 2012
A new research report by the Tabb Group, “Real-Time Market Data: Circus of the Absurd,” argues that the consolidated tape is no longer sufficient to satisfy best execution requirements.
This is leading to an increase in the use of real-time market data (RTMD) feeds through the 13 market centers where US equities and equity-linked products are traded.
“The consolidated tape has reached its limits of utility,” say Paul Rowady, Tabb senior analyst and report author. “It’s also slower than proprietary real time-feeds.”
How much slower?
“It doesn’t matter,” Rowady explains.”It can only be a fraction of a second, but it can never be as fast as direct feeds.”
The tape aggregates trading data from various market centers, including all securities exchanges, electronic communications networks (ECNs), and third-market broker-dealers.
Real- time feeds don’t aggregate, which gives them the edge in transmission speed.
And for high-frequency trading firms, that edge, no matter how miniscule, is what matters. “Today the first HFT shop to make the trade gets the apple – the whole apple,” Rowady says.
Rowady says everyone still purchases the consolidated tape but no one uses it – well almost no one.
He concedes that some HFT firms “arb “(as in engage in arbitrage) on price differentials on the same stock listed on the tape and direct feed. Which may explain why there’s little incentive today for HFTs to bridge the speed gap between direct feeds and the tape.
Also, some firms derive tape revenue, and it is the existence of, and competition for, this revenue that creates reason for compliant, Rowady says. “It’s too slow for market makers who need to satisfy their best execution obligations without simultaneously consuming mass amounts of real-time market data directly from exchanges.
“Now that average trade sizes are so small and bid-offer spreads so thin, the inside quote is of little value in determining short-term market dynamic,” says Rowady. “And without full depth-of-book (DOB) data sourced directly from the exchanges, market makers tell us that they aren’t able to successfully, or profitably, navigate this rapidly shape-shifting marketplace.”
Equally relevant, RTMD also draws complaints. “RTMD costs aren’t equitably borne by all market participants when taking into account the nature of how that data’s used, different technologies deployed and how this data’s important to each user’s model,” Rowady says.
He notes that the tape’s pricing model hasn’t been updated to reflect new usage patterns since the mid-1970s.
“At the very least the market control mechanisms are due from some major reconsideration,” he concludes.
