Traders who are big users of quote messaging should pay for their share of the quote traffic they generate.
In fact, regulators should seriously consider leveling a fee on those who send "excessive" amounts of quotes and cancellations into the market, according to Robert Gasser, the president and chief executive of Investment Technology Group. Income from such a fee could help pay for a much needed consolidated audit trail, he suggested.
Significant spikes in message traffic have been a burden to market data systems across the industry, Gasser said. He spoke yesterday morning at the Security Traders Association’s 77th Annual Conference at the Omni Shoreham Hotel in Washington, D.C. Gasser addressed an audience of about 200 STA members. Gasser wasn’t alone in his sentiments.
"Message traffic is beginning to outrun Moore’s Law on processing power," Gasser said, referring to the theory on the rate at which the processing speeds of inexpensive computer chips increases over time.
In particular, Gasser singled out firms that employ latency arbitrage strategies. These are firms that profit from delays in price updates between the market data feeds at the various exchanges and the consolidated tape system. He extended his message to all firms that flood the markets with buy and sell orders, followed shortly with cancel orders. Such message traffic puts a strain on computer processing power.
"Latency arbitrage profit is a tax on our equity market infrastructure," Gasser said.
The industry has seen exceptional growth in message traffic recently, Gasser said. For example, he noted there has been a 57 percent increase in message traffic at Nasdaq alone over the past few months.
Attendees mostly were in agreement that an answer to the spike in traffic was needed. Traders Magazine spoke to four conference attendees who heard Gasser’s speech. Message traffic has indeed been rising rapidly, they agreed.
One exchange executive, who didn’t want to be quoted directly, said a fee on quote traffic was a good idea. But such a fee needs to be implemented evenly across all market centers to be effective, the exec added. If not, then traders could shift their order flow to those market centers with the lowest fees. In addition, the exec said any fee that was harmonized across market centers should be implemented gradually.
A trader at a large buyside firm offered two possible solutions to burdensome message traffic. Regulators could either press for a fee, or they could find a way to moderate or filter the amount of outgoing quotes.
"Either way, something has got to be done," the buysider said. "Our market data costs have been rising exponentially for years–I mean, exponentially. They’ve clearly gotten out of hand."
