One possibility is that the SIP gets an upgrade, either through investment or a governance change, making it more competitive with the proprietary data feeds. This is something Adam Nunes, head of business development at Hudson River Trading, has argued for.
Steps in this direction are underway. In late October, part of the SIP migrated to a new system that reduced the latency (think increased speed) by 95%, with the median latency decreasing from 500 microseconds to less than 20.
Another route toward change is through the courts.
In 2006, the NYSE acquired Arca and starting charging for depth-of-book data that had previously been free, a move that was approved by the SEC. NetCoalition — a trade association including Yahoo, Google, and Bloomberg — and the finance trade body Simfa joined forces in 2008 and filed suit seeking to set aside the SEC order approving the increase in fees. That legal battle has worked its way through the courts, with the latest petition rejected in June.
"The Exchanges have presented persuasive evidence establishing that their ability to price their depth-of-book products is constantly under pressure from their biggest customers, and those customers' ability to control order flow," Brenda Murray, a chief administrative law judge, wrote in her decision. "That is enough."
Simfa and NetCoalition submitted their opening brief to appeal that decision in September, and the exchanges are due to reply next week. Oral arguments are due to be heard in 2017.
"Everyone likes the Simfa lawsuit as the way to solve this because that way it is in the hands of a judge rather than someone who has to go and have breakfast the next day with the other side," Friedman said.
Then there's the possibility that the SEC or Congress would decide to intervene. At present, the SEC controls the pricing of the SIP, and while exchanges submit data and infrastructure pricing, these are always accepted.
"When an exchange, which has a license from the government and has a pseudo-monopoly, files with the SEC to add a charge, what is the government's role?" Cifu said. "It is to rubber-stamp it? Or do they say 'We need more info if this fair and reasonable charge?'"
IEX has asked for more transparency on the makeup of the charges. That request, and Bats' decision to weigh against Nasdaq's proposals, could have a meaningful effect.
"If you have an exchange calling for reform, it really changes the debate in a big way," Gallagher said. He added that he could see this becoming "a massive hot-button issue."
"It is the entrance of IEX, the Bats movement — that is what the commission has never dealt with," Gallagher said. "The commission has always faced a united front supporting the status quo. It was always black and white. Now there are shades of gray, and I think it is fascinating."
Then there is the possibility that things stay as they are. Tabb, who earlier in the year penned a Bloomberg View column titled Stock Exchanges Are Eating Your Returns, said: "I think we're stuck with the status quo unless the whole industry yells so loud that they force Congress to do something."
Whatever happens next, the ongoing war of words is further evidence of how stock trading has fundamentally changed. Gone are the days when you could buy a place on the floor. Now you buy a place in the data center.
"The floor of NYSE doesn't exist," Cifu said. "It is in Mahwah, New Jersey. Now you can pay to be a floor trader, which is to say you can be in the data center. It has democratized the trading floor. Anyone can be there. But there is zero alternative for a market-making firm but to be in there."
