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IEX Suggests SIP Improvements

In a recent letter to SEC Chair Mary Jo White, IEX, the alternative trading system operator, discussed its views on certain National Market System issues. The comments focused on governance issues at Securities Information Processors (SIPs), the entities which calculate the National Best Bid and Offer by aggregating quotes from exchanges. The letter highlights recent issues, such as the August 2013 outage at the Unlisted Trading Privileges SIP (which provides the exclusive aggregated data feed for Nasdaq-listed securities), and the October 2014 outage at the Consolidated Tape Association SIP (which performs the same function for all other National Market System securities).

IEX contended that “the market as a whole and the public good would benefit from reformation of the mechanisms of governance of these central elements of the national market system.” It also expressed concern regarding recent outages with each of the SIPs and the speed differential between exchange direct feeds and the SIP feeds. IEX took issue with the lack of transparency by the UTP SIP operating committee during the recent SIP operator selection process, which IEX characterized as using “executive sessions that exclude current advisory committee members [and] the voting participation of SROs that are currently not operating US equity venues.”

To improve the process, IEX suggested increased transparency regarding meeting minutes and voting records of SIP Operating Committees, relevant third-party communications, and SIP finances. The letter also argued that investors and broker dealers should have voting representation in the SIP process. Further, IEX proposed that the current one vote per exchange model be changed to one vote per exchange family engaged in equity securities trading because it argued that the current system provides some exchange families additional votes even though the underlying exchanges act in a coordinated manner. Lastly, IEX suggested that conflict of interest rules be added to the SIP process so that parties with a commercial interest in the outcome are not allowed to cast a vote, due to the fact that some voting parties also offer direct feeds of exchange data.

In addition to the governance changes it suggested, IEX proposed a broader reevaluation of the current SIP model.  The letter suggested that moving to a multi-SIP model would introduce competition into the provision of consolidated market data, reducing the impact the outage of a single SIP would have on the market, and forcing SIP providers to increase the performance of the feed.

The letter echoes several concerns raised by SIFMA in a letter addressed to the UTP Plan Operating Committee in October.