March 23, 2001
BY ELECTRONIC MAIL: firstname.lastname@example.org
Mr. Michael Atkin
Financial Information Markets
Software and Information Industry Association
Financial Information Services Division
1730 M Street, N.W., Suite 700
Washington, DC 20036-4510
Re: Submission to the FISD for inclusion in its White Paper to be presented to the SEC Market Data Advisory Committee on April 12, 2001
Bloomberg L.P. ("Bloomberg")1 appreciates the opportunity to submit to you a summary of its position on the key issues regarding market data for inclusion in the White Paper which you are preparing for submission to the SEC Market Data Advisory Committee at its next scheduled meeting on April 12.
The following items identify the issues regarding market data that we consider most important together with proposals for the collection, dissemination, pricing and regulation of market data that we believe would maintain and enhance market transparency:
- Bloomberg supports the basic principles and objectives of the Securities Acts Amendments of 1975, specifically the consolidated quotation and display rules that ensure the transparency of the markets. In light of the technological changes that have occurred in the markets over the quarter century since the 1975 Amendments were enacted and with the increasing prospect of the privatization of exchanges, we think it is necessary for the Securities and Exchange Commission (the "SEC" or the "Commission") to take affirmative steps to promote market transparency.
- Following past practices, exchanges should continue to provide real-time access to the core data they customarily provide. To date, the exchanges2 have not been permitted to charge for data outside of those core data. That pattern should be continued. The core data must include necessary and essential market data that cannot be derived by reverse engineering, particularly the NBBO, last-sale data and other information required by information vendors to build the informational displays and analytical tools needed by the investment community (collectively, the "core data").
- If an exchange sells a derived product (such as a depth-of-book indicator), it should have to make available to vendors all the constituent data elements that were not otherwise available and were used to create or nourish the derived product, such as the depth-of-book data used to create or nourish the indicator. In other words, an exchange should not be able to use its monopoly access to unpublished market data to obtain a unique competitive advantage in the competitive market in derived products, such as data analytics. As a result, if an exchange chooses to construct a derived product from as-yet-unpublished data, it should be able to do so only upon making the additional data available to vendors.
- Exchanges should be free to compete to provide value-added functionality and analytics outside of the core data, but they should do so through separate legal entities that do not have the potential to be cross-subsidized by the activities of the exchanges as monopoly collectors, consolidators and disseminators of core data. These entities should bear the same costs for the core data as independent entities bear and should have to demonstrate through filings with the SEC that they are doing so.
- Exchange members are required by law to submit trading data to the exchanges. The exchanges should not be permitted to charge for delayed data or for data derived by third parties from the core data and should not be permitted to charge a royalty on value-added functionality or analytics created by data vendors or others. That is, the exchanges should not have any proprietary right to data outside the real-time window.
- With the advent of decimalization, market participants need to see complete depth of book exposure. To preserve the standards of transparency under the current rules, Bloomberg believes that core data should include access to the depth of book provided by exchanges to their best customers. Since exchange members, by law, provide to the exchanges the raw material that comprises their books, Bloomberg believes that all customers should have access to the highest level of transparency offered by an exchange.
- The fees charged for core data should be cost-based. By cost-based, we do not mean that the exchanges should not realize a return on their investment in the facilities dedicated to the data collection, consolidation and dissemination functions. Rather, we urge a cost-based approach to setting fees for core data that is based solely upon the reasonable and necessary costs of collecting, consolidating and disseminating market data, and not any other costs. The applicable standard should be the one that is customarily applied in ratemaking proceedings by state public utility commissions, where they evaluate whether the rates monopoly utilities charge are fair and reasonable (or "just and reasonable", as some state statutes prescribe). Like public utilities rates, the rates that the exchanges would be permitted to charge would not be limited to cost recovery, but would include a reasonable rate of return, determined by the regulator, on the capital allocable to gathering, consolidating and disseminating market data. To that end, we recommend that the SEC require the exchanges to file annually with the Commission and make available to the public financial statements related to the core market data function, audited on the basis of regulatory accounting principles established by the Commission.
In addition, to further enable the SEC and market participants to monitor the prices and terms being offered to data vendors, Bloomberg proposes that the exchanges be required to publish contracts with the data vendors governing the provision of core market data, fees and rates charged for market data and policies and administrative procedures regarding the provision and use of market data.
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Bloomberg believes that preserving the principles of transparency in market data requires the provision of core data at reasonable cost and based upon publicly available information. Transparency also includes providing data to market participants on equal terms and prohibiting exchanges from using their positions as collectors, consolidators and disseminators of market data to cross-subsidize other market data business activities in which they engage.
Very truly yours,
By: R. Douglas Kemp by RDB
R. Douglas Kemp
1 Bloomberg is engaged in the business of providing its customers with financial market information, news and analytics via its worldwide electronic network (the "BLOOMBERG PROFESSIONALTM service"). Bloomberg also serves its broker-dealer and institutional customers' communications needs and facilitates their transaction of business by offering various additional services, including electronic messaging, non-anonymous offerings, bids wanted and equity order-routing and indications of interest, and linkages to certain exchanges within and outside the United States. Approximately two million text messages and transaction messages involving billions of dollars of securities are sent and received by Bloomberg customers across the BLOOMBERG PROFESSIONAL service every business day. In addition, Bloomberg expects in the future to provide access to additional points of liquidity as customer demand dictates.
2 In using the term "exchange", we mean to include Nasdaq, which has filed an application with the SEC for registration as a national securities exchange.