IEX Chief: Stock Exchanges Monopolize & Overcharge For Market Data

As trading revenues continue to tumble, stock exchanges have had to find new ways to earn big money. And now, data seems to be the key. The Boston Consulting Group has estimated 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,” a Business Insider article published Thursday read.

Taking this into account, stock exchanges have started to transition toward recurring revenue models, selling subscriptions to data feeds, instead of just profiting from commissions made on trades.

While this may sound like a good thing at first, some people in the financial arena are quite concerned about the exchanges’ practices, and argue that they operate a kind of monopoly that allows them to overcharge clients for the information.

Business Insider recently had a chat with Brad Katsuyama, CEO and cofounder at IEX Group, a dark pool or alternative trading system based off the U.S.

“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,” he stated.

“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,” Katsuyama concluded.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.