April 12, 2013
Here were some concerns we relayed to NYSE last month when we received news that NYSE ARCA was levying a new non-display fee of 5,000 a month:
1) It is a large cost increase coming on the back of a large cost increase. When we made our decision to build out our NYSE business at the end of 2011, the top of the line market data feed for ARCA cost 1,500 dollars (750 for ArcaBook and 750 for ArcaTrade). Early last year, NYSE rolled out NYSE integrated feed. The primary advantage with integrated feed was a speed bump, and that increased the charge from 1,500 to 4,500 (1,500 of the new charge goes to NYSE Technologies). But the product is essentially the same there's no significant new benefit to the customer, besides the increased speed, which would have happened anyways as a technology upgrade. Now, with the non-display fee, it further more then doubles so that the total charge becomes 9,500 a month. In less than a year and a half, the cost of the market data feed has gone from 1,500 to 9,500.
2) NYSE's colocation services are already the most expensive in the world. We have a very limited operation at Mahwah right now, but we're still paying over 200,000 a year purely to support trading on ARCA to NYSE and its various subsidiaries. This cost would increase to over 250,000 with the new charges. The net result of these increases may very well be that we, and others similarly situated, stop trading on ARCA completely, resulting in a decrease, rather than increase in revenues for NYSE and its subsidiaries.
3) Unlike increasing exchange trading fees, NYSE's fee increases on market data and technology have been disproportionately borne by smaller firms like ours. This latest fee, which is on a per firm, rather than a per machine or per trade basis, is just the latest example. The net result is that it will cost over 250,000 a year to execute trades on ARCA on even a semi-level playing field (not including the lowest latency 10Gb LCN connections) and that will lead to a market access problem for a lot of market participants, not just traders like us but also anyone who needs to have the capability to send out their orders intelligently, which is quickly becoming all market participants. Fee increases like this one will increase inter-mediation and inequality of market access, which will ultimately hurt NYSE and all market participants.
To those points above, we'd like to add a 4th point:
4) To trade on a level playing field on ARCA (i.e. to be colocated at Mahwah and to trade using the exchange's best connections and data feeds), NYSE requires that we sign significant long term contracts, ranging from 1 year to 2 years. Therefore, we have very little negotiating power when the exchange decides to unilaterally increase fees on their side.
Therefore, we urge the commission and NYSE to thoughtfully consider the impact of NYSE's new non-display feed on trading participants' ability to participate on a level playing field.