Proof
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Proof

The SIPs are getting a makeover!

I used to have a recurring dream (nightmare?) that my much more fashionable sister had nominated me for the makeover reality tv show “What Not to Wear.” Though the show overall is meant to be uplifting, the beginning of each episode can be rather harsh. Surreptitious footage of the unwitting nominee is shown, capturing lapses in fashion judgement. “But I really like my Star Wars episode II shirt,” the blind-sided victim pleads, as the makeover experts shake their heads disapprovingly.

So I have some empathy for how the SIPs must have felt upon the release of the SEC’s new Market Data Infrastructure Rule in December of 2020. We covered the original proposal previously here. But surely, the SIPs must have thought, that was all talk. Ok, they haven’t changed their look much since the late 1970s, but a Jimmy Hendrix t-shirt is timeless, right? Since when are they so out of touch with the needs of the modern market participant? Do all their friends really think this?

Yes, it turns out. Yes they do. Many of them wrote passionate comment letters to that effect [see here]. Except of course the proud parent exchanges, who think their special little boys are poifect just as they are, and the only change they need to make is to call their mother more often. But as the makeover reality tv show hosts force the roughly 45 year old SIPs to look at themselves on camera, finally they see it too: three aging men still pretending they are in their prime, wearing Top-of-Book jeans that are too tight to be flattering and t-shirts with holes big enough for odd lots to fall through. A single tear rolls down the UTP SIP’s face. “I want to be better,” he says.

Stacy London claps him on the shoulder. “You’ve already taken the first step,” she says.

And so, like all reality tv show makeover subjects before them, the SIPs are quickly shepherded out of the “who are you and what are you doing in my house?” phase and into the “I embrace this emotional journey” phase.

While hair stylist Jonathan Van Ness works magic with his shears, we get the backstory through a heartfelt chat. “Decimalization in 2001 just kind of caught me by surprise, you know?” the CQS SIP admits. “Suddenly everyone was quoting in smaller increments, and I just felt underprepared.”

“And then higher priced stocks just kept trending higher,” the CTS SIP laments, “and more and more of the trades started happening in odd lots.” He reaches out for the CQS SIP’s hand. “And I just felt really disconnected from you.”

“It just hurts that people say we’re not enough anymore,” the UTP SIP adds.

“But it’s not you that’s the problem,” Jonathan assures them. “You don’t have to be defined by the round lot and core data definitions of the past. You can start fresh. You can have layers!”

“Ooo! Layers would look really good on you,” the CTS SIP says to the CQS SIP. “A round lot definition that changes by pricing tiers would mean that smaller numbers of shares in higher priced stocks could count as a round lot, and therefore more information will be covered by round lots in higher priced stocks!”

“What about the definition of protected bids and offers?” the CQS SIP asks. “I don’t want that to get out of sync. That would be horribly confusing.” The show hosts smile nervously. “That’s a good point,” they say. “We’ll fix it in post.”

After the commercial break, a matching new round lot haircut for the PBBO has been photoshopped in, and the SIPs are in the capable hands of their “Say Yes to the Suit” wardrobe stylists.

“These suits hold up to 5 levels of depth of book data,” Randy says. “And there are interior pockets for odd lot orders that are priced at or better than the NBBO, aggregated at each exchange.”

“Great!” the UTP SIP says. “But why not just all the odd lots and full depth of book?”

“Too many pockets,” Randy says. “That would just look weird.”

“But proprietary data feeds manage to …”

“Just say Yes to the Suit,” Randy interrupts.

“Yes!” the SIPs say.

Next they are whisked over to the kitchen where they will learn how to prepare auction data. “This will be an important addition to your diet,” the chef explains. “Especially important at the beginning and end of each day. Otherwise you’re missing some essential nutrients.”

The SIPs nod attentively.

By this point, our SIP contestants are looking sharp and feeling confident. They are ready to confront the internal obstacles that had been holding them back.

“So,” Karamo Brown asks them. “Let’s talk about your dating lives.”

“Not much to talk about,” the UTP SIP admits. “I’ve been in an exclusive relationship with Nasdaq since 2014.”

“We’ve been exclusive with NYSE for as long as we can remember,” the CTS and CQS SIPs add.

“And do you feel appreciated in those relationships?” Karamo prompts.

The SIPs look down at the floor, too ashamed to meet Karamo’s heartfelt, piercing gaze. “We don’t mean to complain,” they stammer. “We’ve gotten some fancy upgrades lately and things are, like, fine? But it’s hard not to feel like we don’t have their full attention.”

“You mean compared to their proprietary data products?” Karamo asks gently.

The SIPs nod softly.

“But what do you want?” Karamo asks, leaning in conspiratorily. “Do you want to improve your exclusive relationships, or do you want to open things up and see what else is out there for you?”

The UTP SIP raises an eyebrow, intrigued by the thought. He looks nervously at the others.

“I want competing consolidators,” the UTP SIP whispers.

“Yeah,” the CQS SIP agrees. “It would be nice to feel desirable again.”

They all look to the CTS SIP, who is already swiping on Tinder on his phone. After a moment, he looks up. “Oh, are we not starting now?” he asks.

After a final commercial break, our remade SIPs are re-introduced to their friends and families, who “OOo!” and “Aww!” appropriately.

“The Commission is adopting the definition of core data largely as proposed,” the hosts announce, and the assembled crowd cheers. A fan wearing a “All data is core data!” t-shirt goes wild.

A few people still look skeptical. “How much is all of this gonna cost?” one asks.

“Don’t worry,” a production assistant wearing a SEC hat tries to reassure him. “All fees will still have to be approved as being fair, reasonable, and non-discriminatory.” She smiles at him warmly.

The man furrows his brow. “Isn’t that the same vague standard that has let monopoly fees grow grotesquely beyond costs already?”

Her smile strains as she ushers him further away from the cameras.

“Sir, this is a reality tv show. We don’t solve systemic problems here or address underlying causes. We tidy things up, shuffle things around, and put a bow on them, ok? Do you want your auction data or not? Get with the program or get off the set.”

The man sighs. “Woohoo!” he cheers at the new SIPs. “You look at least 10 years younger!”

Stay tuned for the reunion episode, where Andy Cohen will provoke a discussion about the ensuing lawsuit [https://www.wsj.com/articles/nasdaq-sues-sec-to-block-market-data-overhaul-11612909321]. Nasdaq’s claws come out quickly with a claim that the makeover violates the fifth amendment’s takings clause. The SEC counters firmly with, “dude, you know you’re in a regulated environment. Come on!” You won’t want to miss the drama of this cat fight that’s not a CAT fight 😉

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