NYSE Trade Bunching, IEX Comment Letter, and Devil Dogs


Currently the makers of Drakes Devil Dogs package them in a box, complete with detailed ingredient and nutritional information. This is fairly appropriate because, while folks like me can’t imagine why anyone would not purchase and consume Devil Dogs in volume, and with gusto, many consumers consider the nutritional information on the package germane to their consumption decisions. Some might choose to even consume fewer Devil Dogs, based on that information.

Imagine if Drakes decided to start making two sets of packaging:

  • The exact same box you find in the stores currently, but without the nutritional added information, and priced the same as what you can buy the box for today.
  • The exact same box you can find in the stores today, including the nutritional information, but at twice the price.

This would disturb even me – the greatest advocator for Devil Dogs on the planet.

Has NYSE done the same thing with its trade-bunching practice?

In the distant past, if you were trading a NYSE stock, and bought 1,000 shares at $50.00, where ten sellers each sold you 100 shares, these ten distinct transactions would each appear on “the tape” and on Times and Sales data. Now, NYSE is proposing that to continue its peculiar practice of bunching trades – for the public SIP, while starting to provide the detailed make-up of those bunched trades on its proprietary data feeds.  The significance of this is that those who purchase NYSE’s expensive proprietary data feeds would see ten distinct transactions of 100 shares at $50.00, while consumers of SIP data would just see one trade of $1,000 at $50.00.

If you are thinking “what’s the big deal?”, then please read IEX’s well-thought-out SEC comment letter that discusses NYSE’s practice.

IEX’s Ramsay makes these points:

  • All elements of a transaction – time, price, and trade size – are important in the price discovery process. Trade size is an important element that investors – particularly institutional investors – consider when they make buying and selling decisions. An institutional investor would much prefer to buy 50,000 shares from one natural counterparty, as that transaction almost always results in a lower transaction cost. Buying that 50,000 shares in 500 small 100 share transactions is frankly “leaky”.
  • There is most certainly demand for seeing the detailed make-up of an institutional 50,000 share purchase – especially by hyper short-term prop traders who frequently adjust their quotes and market-making. Those hyper short-term prop traders pay extra for this – they buy the proprietary data feeds of NYSE in part to see this detail.
  • NYSE clearly recognizes this of course, and like other for-profit exchanges, they get a substantial portion of their revenues from the selling of market data and information, as opposed to simply trading volume.

IEX believes (and we see their point) that NYSE’s provision of that detail to paying subscribers, and not the public consolidated tape, is an artificially created distinction meant to drive up the value and demand for their expensive data feeds. IEX believes that this practice is discriminatory, and not “fair and reasonable” under Rule 603(a). IEX’s Ramsay states:

Exchanges are permitted to disseminate proprietary data feeds that offer “enhanced” market data, but we believe that exchanges should not be allowed to provide an inferior view of core market data to the general public, compared to an enhanced view offered to subscribers who are willing to pay a premium for it, where the enhanced view could be provided through CTA or another SIP.

IEX concludes by asking the SEC to require NYSE to end the practice of bunching trades for the public SIP.

IEX’s letter is well worth your reading.