Cboe looks to further reduce SIP latency with reform plans


Exchange operator Cboe Global Markets is looking to further reduce latency of key data for US equities market participants, by implementing Securities Information Processor (SIPs) across multiple locations.

The SIPs are produced by incumbent exchange groups and provide real-time equities data, including ‘top of book’ quotes for stocks consisting of each exchange’s best bid price.

Cboe acknowledged in a recent publication on proposed reforms to market structure that technological advances had dramatically reduced SIP latency from several hundred microseconds to tens of microseconds to process quotes and trades.

SIP latency today, however, is caused mainly by geographical latency due to the inbound distance from a market’s location to the SIP processor location, with additional latency incurred from the distance outbound data trade and quote data travels to reach market participants.

“SIP architecture today requires a single consolidation point for quotes and trades, adding geographic latency between exchange origination and subscriber receipt that in many instances exceeds latency of the processor by more than an order of magnitude,” said Cboe.

“Cboe strongly supports the implementation of distributed SIPs, designed to introduce multiple instances of SIP consolidation in strategic data centre locations, which will contribute to a major reduction in geographic latency. All SIP subscribers would be offered a choice of locations from which to receive the SIP market information and to achieve the fastest data delivery.”

SIP data has been the subject of debate in recent years, as it provides key information on the national best bid and offer (NBBO) for National Market System (NMS) stocks.

Banks, broker-dealers and trading firms have said that while SIP data is useful and necessary, market participants are compelled to purchase proprietary and direct data feeds from exchanges, which are considered grossly overpriced considering how little they allegedly cost to produce and how important they are in terms of regulatory compliance.

“If a broker is routing using just SIP data they are not routing my flow,” Mehmet Kinak, a 19-year T. Rowe Price veteran who heads up global systematic trading and market structure for the asset manager, has said on the subject. “They are not eligible to get my flow, it’s not negotiable. Trading is a zero-sum game and if I’m slower than the other person I lose – that’s it. And this is a best execution obligation, we are obligated to try and price best execution with every order that we have.”

Cboe’s market structure reforms publication was published shortly after the US Securities and Exchange Commission (SEC) proposed to modernise the governance of NMS plans, which produce the public consolidated tape and disseminate trade and data from the trading venues.

Under the current regime, incumbent exchanges, such as Cboe, Nasdaq and the New York Stock Exchange, have total control and voting power over how the consolidated tape is produced and disseminated. Although under the SEC’s proposal, broker-dealers and investment firms would gain voting rights, subsequently limiting the control of incumbent exchange operators.



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