understanding exchange agreements and fees

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If you are building a financial web site or application that will require delayed or real-time exchange data, this presentation is for you. It will familiarize you with some key concepts as well as what to expect in terms of fees and agreements.


  • UNDERSTANDING EXCHANGE AGREEMENTS AND FEES Stephane Dubois CEO & Founder, xignite sdubois@xignite.com @sdubois
  • CONTENT A Little History of U.S. Stock Exchanges Key Concepts in U.S. Equity Markets Fees and Agreements What Solution Is Right For You? Audience If you are building a web site or application that will require delayed or real-time exchange data, this presentation is for you. It will familiarize you with some key concepts as well as what to expect in terms of fees and agreements. This presentation only covers U.S equity markets. Things are a bit different in other countries and for other asset classes such as futures and options.
  • 1949 Baltimore 1954 Washington 1969 Pittsburgh NASD1938 Philadelphia 1875 Stock Exchange 1971 1908 1929 1953 New York Stock Exchange (NYSE) 1817 2007 Boston Stock Exchange (BSE) 1834 NASDAQ BX 2008 2008 NYSE AlterNext 1998 NASDAQ NASDAQ & AMEX Market Group 2002 FINRA 2002 1998 Island ECN INET 1967 Instinet 2003 2005 NYSE Regulation 2007 OMX 2007 Archipelago Securities Exchange 2005 Pacific Exchange 1997 2006 1882 Los Angeles Oil Exchange 1957 San Francisco Stock and Bond Exchange EuroNext 2007 NYSE Arca NASDAQ PHLX NYSE Mkt 2005 BATS Trading 1998 Attain ECN 2005 DirectEdgeKnight 2007 ISE Stock Exchange 2006 CHI-X Europe 2011 Copyright Xignite 2012-2014 Chicago Stock Exchange (CHX) 1882 St Louis Cleveland - Minneapolis 1949 New Orleans 1959 1993 1885 Cincinnati Stock Exchange National Stock Exchange 2003 2007 CBOE Stock Exchange 2011 1790 Board of Brokers 2013 2000 2013 A LITTLE HISTORY OF U.S. STOCK EXCHANGES US Stock Markets Go Back 220 YearsStock exchanges are a persisting symbol of capitalism. Their rich complex history demonstrate how the spirit of entrepreneurship has inhabited our financial markets for hundred of years.
  • FINANCIAL MARKET DATA IS NOT FREE! This domain is complex: Depends on the data, how you get it and what you do with it, etc. Changes on a regular basis Subject to SEC regulation Lots of corner cases and exceptions If you dont follow the rules you will be liable! So lets begin demystify Receiving delayed or real-time exchange data is generally subject to agreements and fees
  • THE CONTEXT So you want to receive exchange data for your app, web site or fintech platform? EXCHANGE VENDOR DISTRIBUTOR USER USER USER USER USER USER EXCHANGE Owns The Data Consolidates Distributes Consolidates Distributes Presents Distributes Views Consumes Feeds Feed API xignite By receiving and distributing market data, you become a distributor in the eyes of the exchange. This means that you may have to have an agreement with the exchange and pay fees. Note that many exchanges will treat Internal Distributors and External Distributors differently. External Internal
  • MONEY FLOWS Who pays for what rights and service and to whom? EXCHANGE VENDOR DISTRIBUTOR USER USER USER USER USER USER EXCHANGE xignite There is a difference between licensing the rights to use the data with the data owner (the exchange) and buying a services to access the data (which could be the exchange if you go directly to them or could be your vendor). You pay the exchange for the license to the data and your vendor for access to that data. Licenses/pays for access to data Licenses/pays for right to redistribute data to others Licenses/pays for right to use/view data External Internal
  • IF YOU RECEIVE OR DISPLAY DATA Delay (Delayed Quotes/Real-Time Quotes) Depth (Last Sale/BBO/Level 2/Depth of Book) Breadth (Single Exchange/Consolidated Tape) Source (NYSE/NASDAQ/BATS/etc.) Type of User (Pro/Non-Pro) Usage (Display/Non-Display/Wallboard/Web/etc.) Control (Control of Access/Control of Display) You become a Data Distributor for the exchange. As a distributor, you may need to sign an agreement and pay licensing fees. Those fees will depends on: Many factors come into play regarding agreements and fees when you get data from an exchange. The more data you get, the higher the costs and the licensing requirements. Make sure you dont get overboard and simply match your solution to your requirements.
  • IMPACT ON COSTS Real-Time data is fee-liable and requires exchange agreements. Delayed data is often not fee liable, but licenses may need to be in place either way (ex NASDAQ). Historical data is often not fee-liable based on the delay policies, though access to historical data is often fee liable. DELAY Last Sale data is generally cheaper than BBO, Depth of Book, or Level 2 data for a given exchange. DEPTH Consolidated Tape data is fee liable (CTA, UTP). Direct Exchange data or alternative access to consolidated data is priced differently via various models. Exchanges can assist you based on your needs. Exchange-specific data is priced by each exchange using different pricing models. BREADTH The choices you make will impact your costs!!! COSTS BREATDH DEPTH DELAY Understanding market data means understanding the key factors that will affect costs and functionality in your solution.
  • DELAY What do the terms Delayed and Real-Time really mean? Trade Occurs Market Close 15mn 15mn Real-Time Delayed End of Day 4:00pm Delays have a large impact on costs and licensing but also a significant impact on user experience. End of Day data is not fee liable in the US (with exceptions like Mutual Fund prices). Real-time data is always fee-liable. Think about what the minimum requirements for your app are. TYPE OF DATA
  • DEPTH What depth of quote information is available? LAST SALE BEST BID OFFER* DEPTH OF BOOK LEVEL 2 Symbol MSFT Last Sale 25.17 Last Qty 500 Symbol MSFT Last Sale 25.17 Last Qty 500 Bid Qty Bid Ask Ask Qty 500 25.15 25.17 300 Symbol MSFT Last Sale 25.17 Last Qty 500 Bid Qty Bid Ask Ask Qty Top ofBook 500 25.15 25.17 800 2,000 25.14 25.18 900 3,400 25.13 25.19 1,300 5,000 25.12 25.20 6,200 6,500 25.11 25.21 8,500 700 25.10 25.22 800 1,200 25.09 25.23 1,760 505 25.08 25.24 900 1,200 25.07 25.25 1,650 DepthofBook Symbol MSFT Last Sale 25.17 Last Qty 500 Market Maker Bid Qty Bid Ask Ask Qty Market Maker ARCA 500 25.15 25.17 400 CIBC BRUT 1,000 25.14 25.17 400 MSCO COWN 500 25.14 25.18 400 MLCO SCHB 500 25.14 25.18 300 RAJA IBKR 1,000 25.13 25.18 200 MRT INCA 200 25.13 25.19 100 BTRD MLCO 1,000 25.13 25.19 200 NITE ITGI 200 25.13 25.19 300 NMRA LEGG 5,000 25.12 25.19 700 ARCA Depth can impact price as well as your ability to display the data to large user base (e.g. on a public web site). Make sure you determine what you really need. Chances are that Last Sale and BBO are all you need for your app. * aka BBO, LEVEL 1, Top of Book Depth is simply the amount of information you get in your data feed. It ranges from only the price of the last sale or trade to details about all outstanding bids and asks and the name of market makers who placed those orders (Level 2 data). Level 2 is the top BBO from each Market Participant. Some exchanges also offer feeds with every single BBO from each participant at every price (e.g. NASDAQ TotalView).
  • Consolidated Feed NASDA Q PSX BX TRF NYSE NYSE ARCA NYSE MKT BATS Direct Edge NSX CBSX CHX BREADTH There are many equity exchanges in the US and data feeds can include some or all of them * Or some other formula Merges all feeds from all exchanges Price is latest price on any exchange Volume is consolidated volume across all exchanges Feeds are fee liable and subject to End-User Fees Consolidated Feed Only includes trades/quotes from that exchange Includes data for stocks listed on other exchanges Price is from last trade on that exchange* Volume is sum of trades on that exchange Liquidity and coverage vary based on market share Pricing is set by each exchange Exchange Specific Feeds If you thought there were just a couple exchanges in the US, think again! Wanting a consolidated feed can have a significant impact on costsespecially if you need real-time data. Exchange specific feeds provide more cost effective alternatives that could work well for your use case. aka Securities Information Processor. There are 2 in the US: CTA and UTP.
  • TRADING vs LISTING How come I can get quotes for NYSE-listed securities from a NASDAQ feed? The primary listing exchange is the main exchange were a security is bought/sold. This is the exchange were the IPO occurs. Not all exchanges list (only NYSE, NASDAQ, CHX and BATS do). About Listing Exchanges receive orders from participants Exchanges must by law provide best execution, which means routing orders to other exchanges. Market centers can execute orders for securities they do not list. Some are not even the first market center for securities they list. This means that exchanges have quotes for securities they do not list. About Trading Institutions Individuals Institutional Broker/Dealers Retail Broker/Dealers Order Matching Order Routing Market Makers
  • EXCHANGE MARKET SHARE In terms of volumes and value traded 0% 5% 10% 15% 20% 25% 30% 35% 40% NASDAQ NYSE BATS CHX NSX CBSX TRF & FINRA Volume Value The chart shows data for April 2014. NASDAQ has 3 venues (NASDAQ, BSX and PSX). NYSE has 3 venues (NYSE, ARCA and MKT) and BATS has 4 venues (BZX, BYX, EDGX, and EDGA). TRF and FINRA are the trades occurring off exchange (dark pools and internalized trades reported to the tape). While NASDAQ and NYSE list most securities in the US, every exchange trades each others listed securities. So an exchange-specific feed will actually give you quotes on most securities. But you will only get a fraction of the market liquiditywhich depends on the exchange market share shown on this chart.
  • TYPE OF USERS PROFESSIONAL SUBSCRIBER Any natural person who is either: Registered or qualified in any capacity with the SEC, the CFTC, and other organizations Engaged as an "investment advisor" (whether or not registered or qualified) Employed by a bank or other organization exempt from


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