Financial Information Forum
Mr. Jonathan G. Katz
July 3, 2003
Subject: Concept Release Petition relating to Uniform Trading Rules and Regulation Release No. 34-47849; File No. S7-11-03. File
Dear Mr. Katz:
The Financial Information Forum (FIF) is pleased to submit comments regarding the Concept Release Petition relating to Uniform Trading Rules and Regulation Release No. 34-47849; File No. S7-11-03. We are especially focused on the issue of sub-penny quoting and trading. FIF was formed in 1996 enabling market data vendors, exchanges, utilities, service bureaus and broker dealers to discuss and share information and solutions regarding factors that concern securities information processing in all aspects of the securities industry, from price discovery through clearance and settlement (www.fif.com). One such group is the FIF Market Data Committee.
The FIF Market Data Committee brings together market centers, consolidators, vendors and broker dealer to explore and address pertinent issues from an end-to-end market data infrastructure perspectives. This committee has worked closely with regulators on technical implementation issues for such projects as OATS, INSITE, Decimalization, Single Stock Futures and Market Structure.
We represent market data and order routing vendors, which will have to display and distribute this information. In particular, under the SEC Vendor Display Rule and the SEC Quote Rule, market data vendors and others are required by law to carry the prices supplied by the various Securities Information Processors (SIPs).
We recommend that the minimum price increment for equities quotes and orders be a penny. Market data traffic rates have risen steadily although the share volume of business has been stagnant. This means much higher costs for all participants, including the beneficial buyers and sellers, who ultimately pay for everything.
The move to penny pricing from sixteenths created a six-fold increase in the number of possible price points. Moving from pennies to tenths would be worse, making a ten-fold increase in price points. Going to hundredths of a penny would cause a hundred-fold increase in price points! It is hard to estimate the traffic increase that might cause but we can be certain it would be large.
If history is a guide, this will not increase the overall share volume. All it will do is increase the costs for all participants, and again the ultimate buyers and sellers will have to pay.
Many buyers of market data now are looking for ways to mitigate the impact of increasing message rates, which are driving up their infrastructure costs but not improving their business. If the SEC does not act to stem the proliferation of market data that has little economic value, those in the marketplace will act independently to eliminate useless data. That may well reduce the benefits of openness and transparency achieved by the SEC over the past three decades.
Annette Nazareth Director, Division of Market Regulation stated at the SIA Market Structure conference of June 13th that the commission will be focusing with increased intensity on ensuring fairness and efficiency in the National Market System. Sub-penny pricing is not fair and the increased required infrastructure is not efficient.
We would urge the Commission to take a broader view of the impact of sub-penny pricing and its very real potential to actually reduce availability of market data and transparency in the securities markets.
Thank you for your consideration. If you require further information or clarification, please contact Kathy McGovern at (212) 652-4463.