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Exchanges have garnered more than their fair share of headlines lately, with the high-
profile merger of the New York Stock Exchange and Euronext, Nasdaqs dogged pursuit
of the London Stock Exchange and subsequent agreement to buy OMX, and the bidding
war that eventually resulted in the merger of the Chicago Mercantile Exchange and its
neighbor the Chicago Board of Trade.
But even though these mega-mergers are being driven more by the need to be a global
player with a broad array of assetsincluding market data, indexes and analyticsrather than
by cost pressures, its not all smooth sailing for the exchanges. The LSE fought off Nasdaq,
while the IntercontinentalExchange almost became a spoiler in the CME-CBOT deal, as is the
Dubai Exchange in Nasdaqs OMX deal. As Alexander Potemkin, president of the Moscow
Interbank Currency Exchange, writes on page 14 of this report, it is up to regional exchanges
whether to strike deals with leading exchanges, or to aspire to become a leader themselves.
While the record trading days of August seem like the sign of a healthy market, record levels
of quote and trade data are straining an already over-burdened market infrastructure. With
increasing participation from hedge funds creating voracious demand for data, exchanges
must process record amounts of information at record speed, without placing onerous band-
width requirements on their members and customers. The FAST (FIX Adapted for Streaming
Data) protocol has emerged as a saviorfor now. But with data volumes look set to
continue their exponential rises, for how long?
And how long will the volumes continue? Exchanges are also facing pressure
from new trading and trade reporting venues created as a result of new regulations
such as Reg NMS in the US and the Markets in Financial Instruments Directive in
Europe, which are vying for the exchanges business. The exchanges seem confi-
dent of remaining the destination of choice, but will intensifying competition drive
down the cost of market data, or will multinational exchange empires
merely reinforce existing policies?
To find out how the exchanges plan to respond, turn to pages 6 to
13 to read the opinions of our panel of exchange data experts.
Max Bowie
Editor, Inside Market Data
Taking Stock of Exchanges
Max Bowie, Editor
Tel: +1 212 634 4843
max.bowie@incisivemedia.com
Jean-Paul Carbonnier, European Correspondent
Tel: +44 (0)20 7968 4588
jp.carbonnier@incisivemedia.com
Elizabeth LeBras, US Reporter
Tel: +1 212 634 4809
elizabeth.lebras@incisivemedia.com
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Tel: +852 2545 2710
wendy.mock@incisivemedia.com
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Tel: +44 (0)20 7484 9907
lee.hartt@incisivemedia.com
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Tel: +1 212 634 4817
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Inside Market Data
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All rights reserved. ISSN 1047-2908.
www.insidemarketdata.com September 2007 3
LETTER FROM THE EDITOR
4 September 2007 www.insidemarketdata.com
Inside Market Data
EXCHANGES Special Report
The Chicago Mercantile Exchange is
making changes to the way that market
data from the Chicago Board of Trade
is displayed and reported, in an attempt
to harmonize data policies following the
merger of the two exchanges.
The merged exchange will distrib-
ute only five levels of market depth
for futures products, consistent with
CME data, compared with 10 levels of
depth currently made available from the
CBOT.
There will be those that argue for
more depth, but we have historically
found that to be the right amount to
get an accurate picture of the market,
says Brian McElligott, director of infor-
mation products at the CME. Weve
looked at expanding that in the past,
but it would just mean generating more
data, so we would be hurting custom-
ers that way, McElligott says. The
Globex system is only set up to gener-
ate five deep, and we wanted as efficient
and seamless a transition as possible.
We wanted to mirror the current CME
processes as much as possible and keep
them consistent, he says.
Trading firms will be required to re-
port data usage quarterly in order to
qualify for a trading-data fee waiver, us-
ing the CME Online Web reporting sys-
tem (COWs). The fee waiver applies to
data from the exchanges Globex trading
engine that is used within an order-entry
system connected to Globex trading on
behalf of a capitalized futures trading
account. The CME also recommended
that customers have 20 megabits per
second (Mbps) of bandwidth to receive
just futures market data from the com-
bined exchange, and connections with
bandwidth of 40 Mbps to also receive
options data on contracts previously
traded on the CBOT, which will migrate
onto Globex in January.
The other key difference between
the two markets is that the CME lists
prices in decimals, whereas the CBOT
uses fractionsa problem that clients
can solve by using three fields contained
within the CMEs MO instrument-crea-
tion market data messages to translate
decimals into fractional prices. n
CME to Harmonize CBOT Data Post-Merger
The Tokyo Commodity Exchange has
increased the frequency of its market
data distribution in response to market
forces and client demand, reducing the
interval at which it delivers snapshot
prices via member terminals from three
seconds to one second.
The exchange increased the fre-
quency in response to system upgrades
at overseas exchanges and requests for
faster data from exchange members,
foreign brokers and trading firms, ac-
cording to a Tocom official.
Clients using algorithmic trading
strategies requiring low-latency data
also wanted more frequent distribution,
the official says.
While admitting that a one-second
interval is still slower than at many oth-
er exchanges, the official says Tocom
plans to release a new trading system in
2009 that will include the capability to
distribute data in real time with a laten-
cy of less than 10 milliseconds. n
The IntercontinentalExchange
rolled out a new consolidated mar-
ket data feed on Sept. 17that in-
cludes data from both its US and
European markets, after a test phase
with four key data vendors and trad-
ing firms.
The new feed, dubbed Impact
1.1, includes full depth of quotes
from participating trading firms,
and calculated values such as VWAP
for contracts traded electronically
on ICE Futures US (formerly the
New York Board of Trade) and ICE
Futures Europe (formerly the Inter-
national Petroleum Exchange).
ICE plans to add data generated
by the former Nybot trading floor
onto Impact in December when
the exchange migrates the feed to
multicast delivery, allowing ICE to
introduce more channels within its
feed, giving clients the option to
subscribe to specific sub-sets of its
data rather than the entire feed. n
The London Stock Exchange will launch
its low-latency Performance Channels data
distribution architecture in Q1 next year,
and will require customers of the service
to upgrade their circuits from 10 megabits
per second (Mbps) to 100 Mbps.
Tests conducted by the LSE show that
the larger circuits reduce latency by be-
tween 35 and 50 percent, even for firms
that are not looking to subscribe to Per-
formance Channels, says Wendy Morgan,
head of real-time data at the LSE. Given
the latency savings resulting from the extra
bandwidth, the LSE may introduce further
capacity hikes in the future.
A pilot of the new service began on June
18. While the pilot only distributes UK
Level 2 data, the full launch will include all
channels, including UK and international
Level 1 and Level 1 Plus data, along with
analytics, RNS news and reference data.
Some early adopters are even using the
pilot data within their production trading
systems, officials say. n
Tocom Ups Data Frequency
LSE Preps Low-Latency Channels
New ICE Feed
Makes Impact
NEWS ROUNDUP
www.insidemarketdata.com September 2007 5
The Taiwan Futures Exchange
has begun providing its mar-
ket data via BT Radianzs
financial extranet, under a deal
to provide international trad-
ing firms with direct access to
Taifex data.
Under the deal, which
marks the first time that the
exchange has provided a
dedicated offering for interna-
tional direct data access, firms
outside Taiwan will be able
to receive Taifex market data
via three separate feedsgold
futures, futures and options
via RadianzNet, the vendors
IP-based financial network.
Arthur Yeh, senior executive
vice president of Taifex, says
the exchange is hoping that
the new direct feeds will make
the exchanges data attractive
to a range of potential new
clients, including hedge funds
and mutual funds, and other
stock and futures exchanges.
Previously, clients outside Tai-
wan accessed the exchanges
data primarily via data con-
solidators such as Reuters and
Bloomberg, Yeh says.
Clients could also connect
to the exchange via interna-
tional leased lines, though this
process could prove burden-
some, according to Richard
Man, head of Asia-Pacific sales
at BT Radianz.
The feeds should also ap-
peal to other buy-side deriva-
tives traders implementing
algorithmic trading strategies,
as well as data vendors already
using RadianzNet, for whom
the ease of adding the new
connection should incentiv-
ize them to carry Taifex data,
Man says. Three market data
vendors and one broker are
expected to go live on the sys-
tem shortly, he adds. n
Taifex Enlists BT Radianz
For Global Direct Feeds
German derivatives exchange
Eurex plans to roll out a new
market data feed on Nov. 26
as part of the latest upgrade to
its trading system.
Version 10.0 of the Eurex
trading system will include a
new data delivery architecture
based on multicast technolo-
gies to transmit un-netted
market data via subscriber
channels, to meet the de-
mands of algorithmic traders.
Trading has become a lot
faster and more information is
now required, says Thomas
Lenz, a member of the execu-
tive board of Eurex.
The new interface will al-
low traders to receive un-net-
ted market data via channels
that include the full depth of
market for all Eurex products.
Customers can subscribe
to data via groups of prod-
ucts and [a choice of] mar-
ket depth that are packaged
[as channels], says Gerhard
Lessmann, who serves on the
executive board of Deutsche
Brse Systems.
Eurexs two options for
receiving market data direct-
ly from its trading platform
are the Values API, which
offers full market depth and
a complete range of prod-
ucts but transmits data on a
netted basis at regular time
intervals, and XFI, an un-
netted broadcast feed, which
is not segmented into chan-
nels and will be replaced by
the 10.0 release.
As part of the new trading
platform, the exchange is also
adopting a data protocol that
is very similar to FIX (Finan-
cial Information eXchange)
and will use FAST (FIX
Adapted for STreaming data)
encoding techniques to com-
press the data.
A release simulation for
Eurex members is scheduled
to end on Nov. 16. n
Eurex Readies New Feed
SWX Swiss Exchange market data
subscribers experienced a data blackout
on Tuesday, Aug. 28 for products traded
on its Quotematch electronic platform,
following a trading halt caused by an
undisclosed technical problem.
OMX Group will in November
launch a new trade reporting service
for 10,000 European equities, and the
bond markets of OMXs exchanges in
Denmark and Iceland, to help firms take
advantage of changes to OTC trade
reporting requirements under MiFID.
The NYSE-Arca division of the New
York Stock Exchange has rolled out
ArcaBook Multicast for Equities, a new
version of its ArcaBook feed of limit
order book data based on multicast
technology used by NYSEs Openbook
feed, helping the exchange create a
common distribution architecture.
The International Securities
Exchange plans to expand its products
for measuring market sentiment, with
the addition of ISE Open/Close Trade
Profile, an end-of-day file of opening
and closing options data, to allow quan-
titative traders to create proprietary put/
call calculations from underlying senti-
ment data to develop trading models.
Austrias Wiener Brse has added
data from the Bucharest Stock
Exchange to its recently launched Alli-
ance Data Highway feed, as part of a
strategy to expand the data it carries,
which already includes data from
Hungarys Budapest Stock Exchange
The American Stock Exchange is
developing a feed of Level 2 equities
data for launch in the second half of
this year utilizing the FAST (FIX Adapted
for Streaming data) protocol to reduce
the bandwidth issues associated with
market depth feeds.
The Singapore Exchange has
announced a proximity hosting service
with network provider BT Radianz that
will give international firms low-latency
access to SGX data by locating high-
frequency trading applications in BTs
Singapore data center. n
Exchange News in Brief
6 September 2007 www.insidemarketdata.com
All Change for Exchanges
The exchange industry is facing a period of both phenomenal growth and competitive pressures.
Exchange data has never been more valuable, yet the industry is consolidating in the face
of new, emerging competition. More peopleand now, computerized analytic and trading
applicationsthan ever subscribe to exchange data, yet exchanges are only now developing a
unit of count that truly charges per individual user, rather than by the number of applications
in which they viewor channels used to deliverdata. And they must balance the pressures
of record trading volumes with the need to deliver data at the lowest possible latency. Inside
Market Data has assembled a panel of exchange data experts to debate these issues and more.
IMD: How will the recent wave of exchange consolidation affect
the market data landscape, both in terms of the potential for creat-
ing new products (e.g., indexes) and the value of data overall?
Vladimir Gritsuk, head of market data sales, MICEX: It is
obvious that exchange consolidation results in the growth of
market liquidity and transparency, and concentration of increas-
ing market data volumes. As a consequence of this concentration,
anti-monopoly pressure on exchanges may grow as market data
may be regarded as public goods amidst these developments.
Various local markets are starting to offer better access for
foreign investors, who gain the ability for direct and fast trade
execution at a lower cost. In the environment of globalization
and consolidation of the industry, market data users would expect
formats and interfaces to standardize. Yet at the same time, best
practices and data products that have developed in some markets
would spread to involve new geographical areas, industries and
market data users.
Eric Sinclair, senior vice president, TSX DataLinx: Global
consolidation provides the potential to grow for exchanges that
offer trading in multiple asset classes as well as clearing services
to its customers. TSX Group (TSX) offers trading products in
equities, energy and debt markets. We offer clearing for our
energy products and, subject to regulatory approval, we intend to
offer a new clearing agency for derivative products in 2009. TSX
has created cross-border relationships with two of the strong-
est US marketplacesthe International Securities Exchange in
derivatives and IntercontinentalExchange in energy. As borders
become less important in the exchange world, delivery of data
and enabling technologies will become more important. All of
this change brings new challenges and opportunities. The more
that market forces are able to determine appropriate products,
the better this will be for efficient markets. We think we will see a
variety of new and innovative products and technologies that will
address aggregating and consolidating data, as well as expediting
delivery and enabling technologies. As long as there is value in
using more and better information, there will always be value in
data and related products and technologies. You just need to be
market-driven to be successful.
Mike Eichin, technology director, market data services,
Essex Radez: We have two conflicting views with respect to
this question. As a market data vendor, and speaking in the
short-term, we are strongly in favor of the NYSE-Euronext
consolidation as it will allow us access to more data without
increasing our cost basis. This is because Euronext will be a
core service on SFTI [NYSE TransactTools Secure Financial
Transaction Infrastructure], so we will be able access the data-
feed on our existing SFTI infrastructure. This is similar to what
is happening with the Arca migration onto SFTI. The consoli-
dation of various feeds onto one SIP [Securities Information
Processor] can benefit consumers, especially when delivered on
a highly reliable network like SFTI.
As a trading firm, however, we have a growing concern with
respect to the monopolization of markets and the implications
this may have for the long-term. Among other concerns, it
may increase cost, and/or set the stage for increased foreign
competition.
Holli Heflin, managing partner, Exchange Fee Monitor
Inc., Exchangology and Information Asset Management:
Generally, exchanges are striving for additional products, volume,
and from those, revenue. As a result of these pursuits, exchanges
overlap with one another in product formation, distribution and
structure. As market data service providers evolve, they too begin
to overlap each other as well as exchanges. The result will be
Inside Market Data
EXCHANGES Special Report
ROUNDTABLE
Vladimir Gritsuk
Head of Market Data Sales
Moscow Interbank Currency Exchange
Tel: +7 (095) 234 4811
www.micex.com
exchanges and MDS providers competing more aggressively.
Competition will promote further consolidation through
mergers and acquisitions, andwith successful product abduc-
tionwill lead to a decrease in revenues for both types of com-
pany. Another form of revenue reduction for MDS providers has
been the release of data directly from the exchanges themselves.
Additionally, demand to reduce latency by end-user firms has
these firms installing direct connections to exchanges, which
eliminates the need for basic MDS provisions.
The market data providers that will survive will be the ones
with alternative sources of revenue such as analytics, information,
news, matching engines/ ATSs/ ECNs and indexes, like the
commodities index created by UBS and Bloomberg.
Randall Hopkins, vice president of market data distribution,
Nasdaq: Nasdaq Data Products continues to be defined by our
ever-deepening liquidity pools. Over the past five years, Nasdaqs
depth of book has increased several times over, allowing Nasdaq
to launch six new data products. In addition, Nasdaqs potential
consolidation with OMX could result in greater and even more
frequent innovations, as both organizations share a common
legacy of innovation and technological excellence. This process
will benefit subscribers, data vendors, issuers, and the worldwide
capital markets through increased transparency.
Brian McElligott, director of information products, CME
Group: We are excited about the recent merger with the
Chicago Board of Trade and the opportunities that it brings us
with market data. A limiting factor for many of the exchanges
market data products has been the amount of data available
to feed into these products. For instance, CME E-quotes, our
web-based real-time quotes, charts and news product, primarily
benefited CME-only traders. As a result of the merger, we now
have more data available to us, and the value potential of these
data products increases. We are exploring ways to combine the
CME and CBOT interest rate and commodities data to create
new indexes, or partner with other content providers to create
greater value-added data offerings.
Paul Pickup, director, Trading Technology: I am not sure
the consolidations themselves will spurn any additional market
data, [though they may drive] the consolidation of feeds. New
indexes and additional MiFID/Reg NMS market data are being
driven by the business rather than exchange consolidation itself.
IMD: How is the creation of new venues for off-exchange trading
and reporting (e.g., dark pools and ECNs in the US and consor-
tia such as Projects Boat and Turquoise in Europe)with their
increasing command of big-ticket institutional order flowaffect-
ing the value of exchange data and challenging exchanges posi-
tion as market consolidators? How can exchanges respond?
Pickup: The liberalisation of ATSs, ECNs and Multi-Lateral
Trading Facilities will bring a great deal of new data for exist-
ing stocks, and thus require data aggregators to consolidate the
various sources into single order-book depth. This will fall on
the traditional data vendors to solve rather than the existing
exchanges. The existing exchanges will respond in competitive
manners in order to stave off competition, probably through
the tactic of price reduction, both in transaction costs and of
market data. As traditional exchanges currently have a license
to print money in this respect, they have significant war coffers
with which to do this.
McElligott: As a US-based derivatives exchange, CME Group
has not been directly exposed to these same challenges yet.
However, what is clear is that competition is fierce, data is valu-
able and every firm in the financial services industry should be
looking to stay one step ahead of the competition and industry.
Boat and Turquoise reinforce the value in market data, and as a
result of MiFID there are better opportunities for firms to capi-
talize on that. The exchanges have done a good job in trying to
create new data products or fee structures to remain competitive
and attractive to customers.
Gritsuk: Despite recent proliferation of OTC-type trading sys-
tems, the traditional exchanges still remain the major venues for
forming market prices and pooling together market liquidity. So
exchange data still playsand, we believe, will for the foreseeable
future continue to playan important role. However, OTC trad-
ing systems take away a part of liquidity from the exchanges mar-
kets, leading to both fragmentation of liquidity and fragmentation
of information flows, which often results in less efficient price
discovery for the whole investment community. Put differently, in
order to keep up to date with real-time prices on different trading
venues, investment banks and other users of market data will have
to increase their IT spend, and focus on interoperability.
Eichin: If they hope to remain competitive, exchanges need to
make sure that their regulations do not have the unintended
consequence of establishing a preference for other market cent-
ers. Exchange market data is only as good as the liquidity it
represents.
Hopkins: In the US, we have long been in an environment of
intense competition. The advent of new dark pools represents
more of the same. This competition pervades both data and
www.insidemarketdata.com September 2007 7
Randall Hopkins
Vice President of
Market Data Distribution
Nasdaq
Tel: +1 301 978 5256
www.nasdaq.com
transaction markets, which are, of course, inextricably linked.
Competition is great for the market and has been responsible
for mostif not allof Nasdaqs innovations. Recent Nasdaq
data innovations include TotalView, OpenView, ModelView,
and Nasdaq Market Velocity and Forces, as well as some
new products which await approval from the Securities and
Exchange Commission. This has all occurred while offer-
ing some of the lowest prices worldwide. Recent competitive
moves in the transaction space include implementation of a
more progressive general revenue-sharing plan and aggressive
reductions in transaction fees, and the creation of order types
to support intraday crosses.
Sinclair: In the face of competition, demand for direct exchange
feeds is becoming more prevalent. TSX Group will continue to
focus on providing the most efficient and latency-sensitive data
and delivery offerings. We believe that with the introduction
of new marketplaces in Canada, access to the TSXs full market
book information will be paramount for best execution consid-
erations. In terms of data consolidation, its important to be
part of the solution. TSX has always been open to aggregat-
ing and distributing data from multiple marketplaces. We are
pleased to carry a number of other exchanges and ATSs data
today. We are also working with the various market constituents
to find the right mix of direct versus consolidated data. We see
our role as continuing to facilitate price discovery and appropri-
ate levels of market transparency. This efficiency is important
for effective capital markets overall and for best execution.
Heflin: In the short term,
I believe the exchanges will
pressure regulators to step
up in an attempt to force
the ATS, ECN and dark
pool systems to report via an
exchange. In the long run, I
believe exchanges will form
ATS, ECN and dark pool
systems themselves. In some
cases it may be too little,
too late once technology
and pricing are no longer
factors. At that point, the
relationship becomes premier and exchanges that havent
spent any time or funds on customer dependency will lose
their customer base.
IMD: With exchanges increasingly under pressure on fees,
how can they balance the demands of a for-profit business
with ensuring fair charges for end-users?
Heflin: They cantat least not in the commodities-related
exchanges. They will need to begin to experience the eco-
nomic laws of elasticity, following in the footsteps of the equi-
ties exchanges.
Hopkins: Competition creates an environment conducive to
high-value, affordable products. Because of the highly contestable
nature of the markets, at least in the US, Nasdaq is driven to offer
fair and highly competitive prices. In fact, Nasdaqs market data
fees have seen little or no increase in the past 10 years, while the
number of quotes or trades delivered has increased exponentially.
There is no conflict as implied herein contrast, it is the demands
of a for-profit business in this highly competitive environment
that ensures fair charges and increasingly valuable products.
Moreover, market data in the US is among the cheapest
data in the world. For equivalent data, non-professionals pay
$7 per month in the United Kingdom, $16 in Hong Kong,
and $19 in Germany. US data is not only cheaper and faster;
it also carries data for more issuers, more trades, and a higher
dollar volume of trading.
Eichin: While we understand that exchanges need to cover the
cost of producing and distributing their data feeds, and are enti-
tled to a reasonable profit margin, we are opposed to monopoly
pricing models effectively raising costs to the point where many
smaller firms are unable to afford direct feed data. These models
have a fundamental effect on the industry because they reduce
competition and creativity, and skew the market toward large
firms. We are the exception as we subscribe to virtually all North
American direct feeds but we also have a market data bill out of
all proportion to our size. Charges of $5,000 a month for NYSE
OpenBook and Nasdaq TotalView may not trouble bulge-bracket
broker-dealers, but they leave many smaller firms questioning why
the SEC doesnt show some leadership in addressing this cost
issue. When the Chicago Board Options Exchange announced
it is pulling its index data out of the Options Price Reporting
Authority feed, and charging $850 per month (in addition to
extranet connectivity) for a tiny little CBOE indexes feed, it makes
you question the motivation.
Sinclair: Its all about value for products and services, and
efficient business models. The laws of supply and demand will
ultimately determine the right pricing equilibrium. TSX Group
strives to provide relevant products and services, and to continue
to work closely with all of our clients and channel partners. Our
primary focus always needs to be outside-in. With respect to
making fees more competitive, TSX has in fact lowered our Level
1 fees over the past several years for small user accounts, making
it more economical to access data from our market. We have
8 September 2007 www.insidemarketdata.com
Inside Market Data
EXCHANGES Special Report
ROUNDTABLE
Traditional exchanges have a very healthy
balance sheet... [and] are well positioned
to fight competition through the medium of
pricing without incurring losses. The inability
of start-up MTFs to bankroll losses will...
lead to a consolidation of trading venues
Paul Pickup, director, Trading Technology
Holli Heflin
Information Asset Management
www.insidemarketdata.com September 2007 9
also maintained certain price points in spite of the exponential
growth in quote traffic. The industry will enjoy significant cost
savings through TSXs efforts to aggregate data because we are
leveraging existing telecommunications connections as well as our
proven administration capabilities.
Pickup: As I mentioned in my previous response, as a business
model, the traditional exchanges have a very healthy balance
sheet, as a result of their monopolistic position coupled with
the exponential increases in volumes. They are well positioned
to fight competition through the medium of pricing without
incurring losses. The inability of the start-up MTFs to bankroll
losses will inevitably lead to a consolidation of trading venues.
Research currently being conducted by Trading Technology
predicts that the existing exchanges will hold on to their
monopolistic positions, andafter this consolidationwill be
able to ramp charges again.
McElligott: Market data continues to be a valuable asset and is
a significant source of revenue for almost all exchanges. When
investors, shareholders or analysts view an exchanges revenue,
they will expect to see growth in this area as well. Market data
growth can be achieved through changes to policies, protection
of data piracy, product innovation and changes to fees. At CME
Group, we know that market data and associated fees do not
operate in a vacuum. We understand that the value of the data is
closely tied to the trading volume and liquidity generated by our
products. These factors, along with the value of our market data
relative to other exchanges, helps determine fair pricing.
Sergey Vasiliev, deputy head of market data sales, MICEX:
Diversification of products and services could be the solution
to this problem. The exchanges may create mass (prt-a-porter)
products at reasonable prices that are suitable for the majority
of their data clients. These economy-class products can bring
good revenue, provided the number of their consumers continues
to increase. At the same time, exchanges can keep some special
(haute-couture) products developed according to individual
requirements of certain categories of data consumers who are
ready to pay extra money for extra quality. Another way to solve
the problem can be to provide specific, in-depth information, and
for exchanges to develop lines of analytical products based on
their market data.
IMD: What progress is being made on the introduction of dis-
tinct user fees that only charge once for the same data delivered
via multiple methods, and on reasonable per-application fees for
the consumption of data by algorithmic trading applications?
Vasiliev: The tariffs schemes that MICEX offers to vendors de-
pend on the specifics of particular vendor. Usually big interna-
tional vendors (like Reuters or Bloomberg) disseminate the ex-
changes data through different channels (TV, radio, web, PDA
and other mobile devices) in a form of specific products with a
help of particular technologies (HTTP, FTP, WAP, SMS, etc.).
As a rule, when concluding a data vending agreement with such
vendors, MICEX determines in the agreement that the per-user
charge is only applied once for the same data delivered through
the different channelsprovided that the data is not consumed
via several channels simultaneously. There are also a number
of mid-size local vendors specializing in particular methods of
data dissemination. In these cases, MICEX stipulates in the data
vending agreement the particular tariff for each user receiving
MICEX data through a particular channel. At the moment, we
do not have any special information services aimed at algorith-
mic trading, so there are no special fees for data consumption
by algorithmic trading applications. These applications are used
by MICEX Stock Exchange trading members and are covered
by the regular fees for IT access.
McElligott: CME Group has been a pioneer in introducing a
per-user fee structure. We have a direct reporting and billing
relationship with several of our largest end-user firms. These firms
are on a per-user instead of a per-device structure. CME
Group has benefited by establishing a more direct relationship
with the end-users of our data and has actually seen an increase
in subscribers across these firms. Of course, we treat each of these
opportunities on a case-by-case basis, as our data vendors still pro-
vide a very valuable service in aggregating users and reporting. We
also are aware of the industry challenge in accurately valuing the
data consumed and created by an ATS. We have recently required
that ATSs register with the exchange and are reported with our
CME Globex market data reporting. Once we understand the
scope of usage and the size of this universe better, we will look to
structure a policy accordingly.
Sergey Vasiliev
Deputy Head of Market Data Sales
Moscow Interbank Currency Exchange
Tel: +7 (495) 745 8103
www.micex.com
Competition is fierce, data is valuable
and everyone in financial services should
be looking to stay one step ahead of the
competition and industry. Projects Boat and
Turquoise reinforce the value in market data,
and as a result of MiFID there are better
opportunities for firms to capitalize on that.
Brian McElligott, director of information products, CME Group
10 September 2007 www.insidemarketdata.com
Eichin: As a data consumer, we have seen no progress on this
front. The New York Stock Exchange is the only exchange we are
aware of that only charges once for multiple applications on an
end-users display. Nasdaq charges for each instance, even though
multiple instances are with the same end user. Regarding applica-
tion fees, we have seen no evidence of these decreasing.
Hopkins: Nasdaq is in the process of filing with the SEC to
introduce a new reporting type/ fee schedule to allow more
flexibility to firms who wish to provide multiple data accesses to
a single user.
Heflin: On the commodities side of the industry, there has been
minimal progress. Many exchanges are winging it with no firm
plans in place. Pricing can be forced on them by the largest end-
user firms, who have the power to utilize their revenue control
over the exchanges to take advantage of this. This process will
change to include smaller firms in the future.
Sinclair: TSX continuously reviews how our data is being used
and what value is derived from that data. We find that there is
a growing market for direct feeds as a result of the proliferation
of automated trading applications, so we are looking for ways to
enhance the availability of our data in this regard. At the same
time, a primary concern among exchanges globally is how data is
being used and distributed within firms. Although policies differ
slightly from exchange to exchange, proper permissioning and
entitlement capabilities should be of paramount importance to
firms so that their compliance obligations are addressed. TSX will
continue to work with our clients both to ensure that we are mak-
ing it as easy and fair as possible to receive our data products, and
to ensure we are properly compensated. The term data piracy
has been used by some in the industry, and we do not like the idea
of our clients finding themselves off-side.
IMD: As more markets look set to admit new participants such
as hedge funds as direct exchange members, will exchanges tailor
new content and offerings for these new participants, and what
could these include?
McElligott: The growth of hedge funds and algorithmic traders
actually poses an ironic challenge to the market data industry.
While everyone is trying to control and manage the exploding
market data messaging rates and bandwidth consumption, hedge
funds and algorithmic traders actually want as much data as pos-
sible for analytical purposes. In 2005, we began databasing and
selling historical market depth data via CME DataMine. This
product has seen phenomenal growth, fueled primarily by our
hedge fund clients.
Gritsuk: Taking into account the specific activities of hedge
funds, which often use very aggressive and complicated modern
trading strategies and risk management tools, MICEX is working
on new information products that will blend real-time market
data with on-line historical analysis, immediately reflecting even
the smallest changes in markets behavior.
Heflin: Although this isnt true for every type of financial security,
in commodities, hedge funds are still smaller players, [though]
some of the commodity exchanges are attempting to cater to the
whims of hedge funds by creating products in which they show
interest. Often, these products trade minimal volume.
These new players will change the how the game is played,
utilizing direct connections and ATS, ECN and dark pool sys-
tems to eventually decrease the revenue streams of the middle-
man futures commission merchants, broker-dealers and market
data providers.
Pickup: The time per transaction and the latency of data dissemi-
nation have become market differentiators for algorithmic traders
and hedge funds. Exchanges will respond by offering co-location
of servers to minimize latency and maximize efficiency for com-
puterized trading applications
Hopkins: Nasdaq Data Products has always created products
designed to deliver value to hedge funds, individual inves-
tors, and non-member market participants. We are continu-
ally identifying and testing potential offerings through our
Experimental Market Information initiative. New products
such as Nasdaq PreSM and the Daily Share Volume Report
are great examples of this, as is our broader sponsored access
program. Thanks to the SEC, Reg NMS has achieved a proper
balance between regulation and competition by permit-
ting exchanges to sell proprietary data separately from con-
solidated data, and enabling other data producers, including
exchanges, broker-dealers, mutual fund complexes and market
data vendors, to create new products.
Inside Market Data
EXCHANGES Special Report
ROUNDTABLE
There is a growing market for direct
feeds as the result of the proliferation
of automated trading applications.... At
the same time, a primary concern among
exchanges globally is how data is being
used and distributed within firms.
Eric Sinclair, senior vice president, TSX DataLinx
Brian McElligott
Director of Information Products
CME Group
Tel: +1 312 930 6946
www.cme.com
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12 September 2007 www.insidemarketdata.com
Sinclair: TSX Group has a number of product ideas that will
involve lower-latency feeds and formats, improved delivery capa-
bilities, lower bandwidth requirements, and improved enabling
technologies. We are also evaluating feed packaging (such as
the S&P/TSX 60, Composite, inter-listeds, sectors and reduced
bandwidth costs for list and basket traders), data consolidation
(the consolidated best bid and offer, consolidated quote and
trade feed) and value-added content (insider data, net house
summary information, and total market volume-weighted and
time-weighted average price) to ensure our products are relevant
and useful to these new participants.
Eichin: Markets can and should differentiate by supporting
new, perhaps unorthodox order types in order to increase
market efficiencies, and should seek regulatory approval for
these where needed. Examining cancel/ replace patterns in
order management might lead to appropriate innovations.
IMD: How important is it for exchanges to attract international
participants, and what new products can exchanges offer to attract
overseas firms?
Heflin: It is vital to attract international customers. Any new
exchange customers contribute to the liquidity and revenue
stream. In the case of large international players, if they are not
acquired as customers they may become competition. Products
that create hedging, arbitrage and diversification will fare best
with international customers.
McElligott: Exchanges are no different than almost any other
industry that needs to find ways to compete in a global economy.
To attract international customers, it is important to have 24-
hour trading, global distribution and exchange personnel in
those regions. Also, launching new products that appeal to those
regions is essential. Just within the past two years, CME has
launched futures products on the E-Mini S&P Asia 50, E-mini
MSCI EAFE, FTSE/Xinhua China 25 Index, Korean Won and
Chinese Renminbi.
Vasiliev: Certainly its very important for any exchange, because
overseas participants bring obvious advantages (growing liquid-
ity) to exchanges. Nevertheless, we are glad that for the past two
years, the share of non-resident trading on the MICEX Stock
Exchange more than doubled to over 30 percent. As to the spe-
cial information services for international participants we believe
these could include: a line of internationally adopted indexes
containing industrial and capitalization indexes developed on the
basis of the best index management practice; products containing
comprehensive reference data in line with international standards;
and regular reports summarizing the exchange market data along
with the OTC data for the same instruments to give data consum-
ers the whole in-depth picture of the market.
Sinclair: TSX Group has an extremely strong domestic posi-
tion, so it is very important to continuously expand our cus-
tomer base from international participants. To attract these new
customers, we need to remove barriers by, for example, offering
FIX connectivity and by ensuring our pricing is competitive and
aligned with expectations. There are a number of products that
an exchange can offer to attract overseas customers, relating to
all aspects of trading. These include products relating to con-
nectivity, trading and data, and clearing and settlement. TSX
is exploring opportunities in a number of these areas. From a
derivatives perspective, international participants are also very
important in growing liquidity and providing the critical mass
for liquid contracts. TSX recognizes that it is important that
our rules make it as easy as possible for foreign participants to
connect directly to the exchange. Exchanges must also offer
innovative contracts that facilitate different trading strategies
and the respective data products that will in turn facilitate the
trading of those contracts by ensuring traders can easily access
the data they need.
Hopkins: Part of Nasdaq Data Products overall and healthy
growth strategy is the development of data products that match
local interests of the global participants, expand transparency, and
facilitate healthy capital markets. Nasdaqs transaction systems are
currently accessible worldwide, and a number of broker-dealers
offer trading of Nasdaq securities outside the US.
Pickup: The importance
of international participa-
tion is critical, and is also
mandatory under MiFID.
Exchanges will need to
offer technical products to
ensure fairness and mini-
mize latency for interna-
tional members, and also
deploy routing hubs in
chief financial centers. The
demand for leading provid-
ers of secure wide area con-
nectivity for the financial
markets will increase significantly. More exchanges will also
adopt FIX and FAST (FIX Adapted for Streaming data) as
Inside Market Data
EXCHANGES Special Report
ROUNDTABLE
Paul Pickup
Trading Technology
Eric Sinclair
Senior Vice President
TSX Group
Tel: +1 416 947 4349
www.tsx.com
www.insidemarketdata.com September 2007 13
standards for ease of connectivity. On the business product
side, amalgamated products will appeal to the international
investor, so there will be a need for sector index derivatives
and exchange-traded funds.
IMD: With low-latency data a priority for trading firms and hedge
funds, what can exchanges employ to distribute data ever-faster,
and at manageable levels of bandwidth utilizationespecially
when dealing with participants in different countries and tim-
ezones?
Gritsuk: The need for low-latency data is a real challenge for
exchanges processing high numbers of transactions in real
time. On the transaction processing side, there seems to be
only one way to cope with this challengeto increase perfor-
mance of trading systems used by the exchange, both in terms
of the hardware and the software. To keep traffic utilization
at reasonable levels, the use of low-overhead transmission
protocols might be recommended, especially on application-
to-application level. Further steps to manage traffic volume
might include using faster compression algorithms for dis-
tributed low-latency data. Finally, it is worth investigating
the possibility of separating low-latency data from non-low-
latency data, and using priority traffic services for low-latency
data transmission, when and where telecom providers are
ready to offer such services.
MICEX, being a fully electronic exchange processing high
levels of transactions in real time, also faces the low-latency issue.
We cope with it by using a high-performance trading system,
low-overhead transmission protocol on an application-to-applica-
tion level, and partly using high-speed compression algorithms on
low-traffic connections. Now, the MICEX trading system is ready
to process peaks of up to 1,000 transactions per second and to
distribute market data with low latency.
Sinclair: TSX Group is meeting these challenges head-on. We
are evaluating new, low-latency feed formats, including FAST,
and raw engine feeds with feed adaptors. We are also working to
improve data delivery by identifying telecom solutions to increase
access to multi-market data and reduce overall cost of acquisition.
Technology integration is an important consideration, so TSX
continues to increase its data integration technologies for direct
exchange feeds as well as looking to offer real time Web-based
streamers.
Hopkins: Nasdaq continues to employ a variety of measures
to successfully mitigate the challenges of data distribution and
consumption. Nasdaqs TotalView ITCH 3.0 feed is widely
regarded as the fastest and highest quality data feed on Wall
Street. Nasdaq also offers co-location services to further bleed
latency out of the transaction lifecycle for those that wish to. Si-
multaneously, Nasdaq continues to innovate with the Nasdaq
DataStore Web site and compressed datafeed services to allow
firms to shrink development costs and infrastructure costs as well
as latency.
McElligott: CME Group is planning on converting to FAST
this fall to replace the current CME RLC market data format for
CME Globex products. We expect to see bandwidth savings of
between 60 and 70 percent as a result of FAST versus RLC. In
addition, we are currently exploring dynamic filtering techniques
to apply to our market data at peak times to reduce the payload
even further. In 2006, CME Group introduced LNet, a co-loca-
tion facility that allows a customer to house a certified trading
application in one of two specified facilities. This service is most
valuable to ultra low-latency or international customers. LNet is
a nice complement to six hubs that CME Group currently has
scattered throughout Europe and Asia.
Heflin: Technology is often outdated by the time it is fully
implemented. Therefore, I like the CME model, which may be
too cost-prohibitive for others: structure it, build it, own it, and
they will come. But if you cant beat them, join themand
pursue their clients as well.
Eichin: Exchanges need to
design their feeds for the end
users direct feed application
server, not merely for band-
width savings. For instance,
Opra FAST seemed like the
solution to the ballooning
options bandwidth rates, but
upon implementing it, several
shortfalls were discovered.
The messages per packet ratio
was not increased, so packet
traffic stayed the same and
inefficiency in the decoder
resulted in a much higher CPU utilization by the application
servers parsing the feed. For those already with a Gigabit Ethernet
connection into SFTI, the Opra FAST feed results in more head-
aches, not less. Simply put, decompression code cannot add more
workload than is eliminated by the processing of fewer packets.
Another example is the upcoming CME FAST changes. They
look good from an exchange and bandwidth perspective, but the
application server now needs to deal with variable length message
fields, rather then the fixed length of most others. This leads to a
loss of efficiency for black box trading applications taking in direct
feeds. With the cost of bandwidth at an all-time low, the trade-off
of less efficiency in exchange for bandwidth savings is not a good
enough business case any more for algorithmic traders.
Pickup: The problem of rapid data dissemination of market
data within the context of increasing volumes is a headache
which many exchanges will seek to solve with data compres-
sion algorithms (and products), such as FAST. It is our opin-
ion that the data vendors will invest heavily in such products
and, as they get economies of scale, will probably beat the
exchanges in international low-latency data. n
Mike Eichin
Essex Radez
Russias stock market is becoming increas-
ingly visible on the international economic
landscape. Turnover is rising, participants
are increasing, and while London has
become popular for IPOs of Russian com-
panies, the MICEX Stock Exchange now
accounts for 70 percent of trading in
Russian securities, whereas the ratio was
50:50 two years ago.
Average daily turnover is now about $5
billion, up from $2.5 billion last year and
$600 million three years ago. Around half
a million individuals trade brokerage ac-
counts, double that of one year ago, while
foreign investors accounted for one-third
of trading on the MICEX SE in May and
are playing a key role in the development
of Russias market as they change from
trading GDRs/ADRs to local stocks.
But as the Russian market becomes at-
tractive to international exchanges and
investors, competition from international
exchanges is unavoidable, and the Russian
market infrastructure needs a clear under-
standing of the future and a detailed strat-
egy to avoid losing its current position.
Stock markets are undergoing a two-fold
period of transformation. First, the largest
exchanges are consolidating to create glo-
bal exchange groups, such as NYSE-Eu-
ronext and (potentially) Nasdaq-OMX.
Second, national markets are develop-
ing into international financial centers. For
example, the London Stock Exchange has
used its developed domestic market to at-
tract international trading and listings, be-
coming a venue for IPOs from Europe, the
US, China, South Africa and Russia.
Yet only 20 years ago, Londons future as
a financial center was in doubt, and would
have remained so if not for the Big Bang
reforms of 1986, which reduced state con-
trol over the City, encouraged exchange
self-regulation, and allowed banks, insurers
and overseas companies to become LSE
members and acquire British members,
laying the groundwork for one of the most
competitive and effective regulatory sys-
tems in the financial markets, and making
London a world-leading financial center.
This current globalization trend makes
the creation of a financial center in Russia
for the Eurasian market, integrating prima-
rily the markets of the former Soviet Com-
monwealth of Independent States, a real-
istic project. So far, only global exchanges
have formed trans-continental alliances,
allowing large emerging markets exchang-
esBrazil, Russia, India and Chinato
dominate their niches. Now, Russia must
decide whether to ally with supra-national
exchange empires or build its national mar-
ket into a regional center that can attract
international investors and foreign stocks.
Each approach has its pros and cons. Al-
liances give exchanges access to the latest
technology platforms, and open up access
to global markets, but also pose risks to the
local infrastructure as exchanges entering
new markets impose not only trading sys-
tems, but also post-trade clearing, deposi-
tory and settlement infrastructureslike
the New York Mercantile Exchanges plans
to use its clearing system for a new interna-
tional oil exchange in St. Petersburg.
But Russias decision to transfer deposi-
tory and clearing functions to other inter-
national centers rather than building its
own means that even if trading centralizes
in Russia, it will be utilizing a virtualized
national exchange infrastructure.
Developing the existing local market,
broadening its services, and adopting in-
ternational standards would be costly and
lengthy, requiring significant funds to im-
plement modern IT systems and to raise
the capitalization of centralized clearing
organizations for foreign investment banks
to open limits for trading in Russia.
Creating an effective national market
with pretensions to the status of interna-
tional center also requires the development
of an effective national back-office infra-
structure. Here, the main issue for Russia
is the adoption of laws to create a central
depository. But the draft laws main provi-
sions (monopolistic presence, the number
of nominal holding levels, the composition
of participants and the ownership struc-
ture) cause fervent debate, making it hard
for the regulator to secure a consensus.
The practical implementation of a central
depository is also key. The technological
model of a Russian central depository al-
ready exists in the form of the inter-deposi-
tory bridge between the National Deposi-
tory Center (the settlement depository for
MICEX) and the Depository and Clearing
Company (the settlement depository for
the RTS Stock Exchange). We will soon
extend the bridges operating hours from
13:30 to 16:00, then increase the number
of securities routed via the bridge and
launch the online mode of its operation.
Developing the national market also
requires exchanges to end their excessive
internal competitiveness. Internal compe-
tition is rising, and the number of stocks
traded on two or more floors at the same
timeor where two families of indexes
and index derivatives are calculatedis
growing. While competition leads to lower
exchange commissions and costs for par-
ticipants, the Russian market cannot sup-
port a pair of everything.
Russias exchange and depository struc-
ture needs to be transformed, and the reg-
ulator and market participants must deter-
mine a strategy for developing its market
infrastructure as a whole and to implement
it within a reasonable time. Otherwise,
Russia risks being unprepared for the ex-
pansion of leading world exchanges. n
Russias Exchange Revolution
The Russian market can choose how to become a leader
on the world stagebut only if it can overcome internal
hurdles. By Alexander Potemkin, president of the Moscow
Interbank Currency Exchange (MICEX)
14 September 2007 www.insidemarketdata.com
Inside Market Data
EXCHANGES Special Report
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