FIF: NYSE Changes to Boost Data Traffic

The already-rising volume of data traffic could increase even further than expected between now and next year as a result of changes by exchanges and regulators, industry insiders say.

The Financial Information Forum, an industry association, predicts that quote traffic over the Consolidated Quote System will rise faster than predicted as a result of automated listed trading as the New York Stock Exchange implements its Hybrid system and becomes a fast market.

FIF members believe that the NYSE's move to automated trading "will have a tremendous impact on the value and amount of market data," says Manisha Kulkarni, the Chicago-based executive director of the FIF. In fact, the volumes could prove to be more than 60 percent higher than currently expected if it follows the same lines as trading on Nasdaq, she says.

"We scaled up the CTS numbers by the average UTP quote to trade ratio," she says. "Based on actual CQS data, the projected January 2007 one-minute peak is 3,987 messages per second, but if the CQS/CTS ratio matches the average UQDF/UTDF ratio, then the projected January 2007 peak would be 6,718 mps."

Kulkarni says this is a conservative model that does not take into account the differences between the market capitalizations of the NYSE and Nasdaq, or between the characteristics of issuers on the two exchanges and their market structures.

Nor does it factor in any increases arising from the introduction of new proprietary data products, such as depth-of-book data, that may need to be carried via CQS and also taken separately by user firms. Kulkarni says some FIF members have expressed concern that the options markets' expected move to penny pricing could force firms to take these market depth products as well.

William Easley, president of the Boston Options Exchange, says a move to penny pricing in the options markets will be the real contributor to the rising data tide. But he says the industry should be able to manage any increase so long as it is handled in a cost-effective manner, which means exchanges offering a choice between the fastest, fullest feed and one that—for example—aggregates at 0.1 second intervals.

"Increased traffic is not necessarily a bad thing, but it can't be one size fits all," Easley says. "People should be able to decide what's the best solution for them."

However, this will still contribute to an overall increase in proprietary exchange data products for vendors and consumers, Kulkarni says. "Firms have to evaluate how much data they can take and the significance of speed," she says.

In addition, firms may have to base their evaluations on even greater increases, says Jeff Wells, senior vice president of product development at Reuters and co-chair of the FIF's market data capacity planning committee. "Now that NYSE is energized by Reg NMS, its for-profit status and its acquisition of Archipelago, it seems inevitable that the Big Board will begin to change radically," he says. "Could the same growth rate [as in the options markets] happen for stocks? Sure; why not? Look at all the ingredients for a data explosion. [New ECNs] are ready for the next exchange revolution, and they know it is going to be about speed and computing power."