March 31, 2000
Mr. Jonathan G. Katz, Secretary
Securities and Exchange Commission
Re: File No. S7-28-99
Dear Mr. Katz:
Bridge Information Systems appreciates the opportunity to comment on the SEC's concept release on regulation of market information fees and revenues. Bridge is the leading market data vendor in the United States. According to a recent Waters survey, Bridge, together with its subsidiary Telerate, was used by 25% of all US financial professionals to access market information, more than Reuters and Bloomberg combined.
We welcome the concept release because we believe that this is an appropriate time to impose additional regulation on the fees charged by self-regulatory organizations for market information. The number of professional money managers, retail investors and potential investors seeking to access market information services is growing very rapidly. Increased market volatility has made it increasingly essential that information be accessible on a real-time basis, rather than delayed or published only at the end of each day. The consolidated tape and quote systems mandated by the securities laws create monopoly suppliers of this information. The result is an accelerating growth in revenue to the self-regulatory organizations from this asset. As the SROs pursue their plans to become private for-profit companies, the monopoly rent extracted for market data could become a powerful anti-competitive resource for subsidizing product development and other new business initiatives.
We agree with the concept release's suggestion that the only appropriate approach to regulating the monopoly price for market data is cost plus. We do not, however, believe that "cost" for this purpose should be defined to include more than the cost of collecting and distributing the data. The inclusion of some portion of market surveillance costs in the base used for regulatory purpose is justified in the release on the theory that some of the value of the data is derived from the integrity of the market. In our experience, the value of data is entirely a function of the volume and liquidity of a market. While markets run with integrity are more likely to attract participants, the increase in data value is an incidental byproduct of that increased volume, and not a motivating factor in determining the level of resources dedicated to surveillance. The release suggests that it doesn't matter very much how SRO funding is allocated between transaction fees, listing fees, member fees and market data fees, because all costs are ultimately borne by investors. But market data fees are borne by those who merely monitor the markets, whereas the other fees are borne by those who choose to directly employ the services offered by the SROs.
As market data vendors and other suppliers develop less expensive mechanisms for permitting retail investors real-time access to market data, the proportion of the total information "spend" by subscribers that is allocated to market data fees, as opposed to the value added services of the suppliers, grows. Despite the constructive attempts by the SROs to create lower fee schedules for "non-professional" users, fees are still at a level that can be an impediment to full participation in financial markets by an increasingly sophisticated and self-directed investing public.
We believe that SEC regulation of market data fees should also include a careful examination of the costs of collecting and distributing that data. We believe that substantial savings to both SROs and market data vendors could be achieved by simplifying the administration of the fee collection process. For example, some European exchanges permit the legal terms for market data distribution to be embedded in the market data vendor agreements with their customers, instead of requiring separate contracts directly between subscribers and the exchanges. We believe that alternatives to the per user model of fee collection, such as enterprise licenses for market data vendors, should be explored.
We look forward to working with the Commission and its designees as it continues its efforts to ensure that market data fees and revenues are "fair and reasonable." Please feel free to contact the undersigned at 212-372-6063 if we can be of any further assistance in this matter.
Very truly yours,
Executive Vice President and General Counsel