IEX CHIEF: Stock exchanges are overcharging investors by billions of dollars
Stock exchanges, having seen their trading revenues dry up, are now making the most of the reams of data they collect as key trading venues.
It is a booming industry. BCG estimates that growth in electronic trading, the use of central clearing, and increased demand for market information and analytics will drive the revenue pool for information providers and exchanges to $125 billion by 2020. That would represent 19% of the total finance revenue pool, up from just 8% in 2006.
The exchanges' business model is changing as a result. They are beginning to look more like subscription businesses, earning money from data feeds and access charges and the like, rather than commission businesses, where they make money from trades.
That has some people concerned that exchanges are charging too much for the data, and in effect have a monopoly.
Larry Tabb, founder and CEO of consultancy Tabb Group, sounded the alarm in January with a Bloomberg View column titled 'Stock Exchanges are eating your returns.' The short of it is that market participants have no choice but to pay for the data, putting exchanges in a position where they can keep jacking up the prices.
Business Insider sat down with Brad Katsuyama, CEO and cofounder at IEX, last week and he weighed in on the issue:
My general sense is that exchanges are charging the industry that they serve many, many multiples, many billions of dollars more than they should for the services they provide.
Katsuyama added:
It is kind of funny in a way, because who actually creates the content? It is the banks and brokers. The exchanges have put themselves in this interesting position where they don't create any original content, but they control the distribution of that, and people have a regulatory obligation to buy that data. Market data is one of the touchiest subjects in the industry, and we're on the side of the industry. The prices are egregious. What the exchanges are charging is going to change. It is funny because information in general, in other industries, is becoming more free.