“No Play for Mr. Gray” – NYSE 2015-31 & NYSE 2015-56

no play


Exactly one month ago, our morning note featured criticism of the NYSE practice of bunching trades, and a proposed rule filing NYSE made that would provide detail of the bunched trades (NYSE-2015-31), but only to buyers of the expensive NYSE private feeds. The detail would not be included on the public SIP. Our note highlighted IEX’s comment letter to that proposal. There was an additional commenter – Nanex’s Eric Hunsader. Both of their comments can be read here.

We bring this up again, as the SEC has read those two comment letters, and apparently thinks they have merit. They seem inclined to regret the proposal, but would like more public commentary.

Generally, there are some consistency problems with SEC SRO rulings.

Data Sellers (exchanges) have some data products that include only last sale, and some data products that include the NBBO, and some data products that have the depth of book also. Their offerings have different speeds. That’s a different issue, as well.

Data Buyers (high speed firms) want to buy the fastest feeds, with the most granular detail, as expensive as that may be. They probably don’t enjoy paying through the nose for those data products; they do so only because they have to, as the Data Sellers create differences between the feeds for that very reason. The Data Sellers love race conditions. The Data Sellers love selling products that are “must have”, even if they are only “must have” products because the Data Sellers know they themselves are creating the unnecessary short term must-have edge.

The IEX and Nanex comment letters both point out that NYSE is proposing something discriminatory – giving more detail to the direct feeds than the SIP. And the SEC thinks that NYSE’s proposal is novel and that they need to think on it some more:

“The Commission believes that permitting exchanges to provide different information about trade executions through their own proprietary feeds than they report to the SIP presents a novel issue that implicates the Regulation NMS requirements regarding “core data” and warrants further consideration.”

In our 2012 book Broken Markets we likened the Stock Exchanges to Arms Dealers. It is good for exchanges to have more information asymmetry. That feeds high speed trading, which creates volume and drives demand for its data products. It’s good for Arms Dealers when there are wars, as those wars drive demand for bullets and guns.

When exchanges propose patently unfair practices (flash orders and data products with information asymmetry), they call the appropriateness of their being a for-profit SRO into question. NYSE Rule 2015-31 illustrates this, and we hope the SEC gives it the official rejection it deserves.

The SEC wants more comment letters.

“The Commission requests that interested persons provide written submissions of their views, data, and arguments with respect to the concerns identified above or any others they may have with the proposed rule changes.”


Please comment to SEC on NYSE 2015-31 and NYSE 2015-56. Nanex has. IEX has. The SEC wants more.

Send an e-mail to rule-comments@sec.gov. All submissions should refer to File Numbers SR-NYSE-2015-31, NYSEMKT-2015-56, or both.