In an op-ed for Bloomberg, Larry Tabb (Founder and CEO of Tabb Group) notes that “the widespread availability of information and new technologies has helped establish the most level playing field in financial markets we’ve ever seen.” However, at the same time, “[e]xchanges are quietly, yet dramatically, increasing the fees they charge for market data and access to compensate for their own dramatic declines in market share as the revenues of brokers, specialists, market makers and other users of stock-exchange services have toppled.”
Tabb highlights that total quarterly revenue for the major equity exchanges grew from $1.5 billion in early 2010 to $1.8 billion in the third quarter of 2015, while revenue from technology and data services increased 62 percent. Over the same period, trading revenues declined for market makers and dealers by 75 percent and by 29 percent for large banks and brokers. Tabb notes that due to best execution obligations, market participants are forced to pay the fees set by the exchanges for data and access.
Tabb explains that revenues based on trading fees for exchanges has fallen due to “the emergence of new electronic trading venues [that] has created a highly competitive marketplace, giving investors more choice, tighter bid-ask spreads, more attractive pricing and better execution.” To replace that revenue, exchanges turned to access and data fees. He argues that this “data oligopoly” harms markets and investors because “[i]ncreasing data and access fees will force intermediaries (market makers and brokers) to recoup their costs by widening quotes or increasing commissions. Higher fees will also force out smaller players, making it harder to find liquidity and raising trading costs for everyone.”
To ameliorate the situation, Tabb argues that the SEC should recognized that the exchanges are now for-profit companies and not the public utilities that they once were and “make sure there is a process to price data more competitively -- or at least, what customers perceive to be more equitable pricing.”