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The exchanges do send the information to the SIP at the same time that they publish it on their own direct feed. NYSE actually got in trouble for not doing thi

The exchanges do send the information to the SIP at the same time that they publish it on their own direct feed. NYSE actually got in trouble for not doing this properly. This isn't actually an easy problem, because there is a TCP interconnect with the SIP, and if it gets bogged down, then the SIP packets can be backed up. The real issue is that since the SIP (CQS/UQDF) are cheap; and big/sophisticated players don't actually use them, no one cares about them. Beyond that the performance is necessarily slower than a direct feed, because if I wanted to learn the price of a NYSE listed-security on NASDAQ the path that the SIP would take is far less direct. Specifically, if I have a machine sitting in Carteret (Nasdaq), listening to the proprietary Nasdaq feed, the data from Nasdaq will be sent to me and the SIP at the same time. But to get it from the SIP it has to go to Mahwah and then back, instead of staying local to the data center. Nasdaq makes its feed available to everyone, for a cost. Someone who is providing execution services, or market making, needs the direct feeds so they can provide good execution and know when to get out of the way. A small investor looking at a screen doesn't care about the SIP or a direct feed. They are going to submit their order, and their broker is responsible for executing it.

jzwinck 13y ago
What do you think would happen if direct feeds were prohibited and participants had to listen to the consolidated feeds only? This could even include getting one's own fills, if there were a consolidated feed with order IDs included (i.e. you would not know your fills any earlier than anyone else).
- cpwright 13y ago
  I don't know, but I can't see very many good side-effects, though can think of some negative ones. The first thing I would think is that participants would gravitate towards trading where the SIP is to avoid transit latency, reducing competition for those exchanges that run their own data center and SIP. Also, I'd imagine that there would be a greater risk of getting run over, so spreads would widen to account for it.
- hft_throwaway 13y ago
  Then HFTs would still win but pricing would widen out since some liquidity is made available because of ability to hedge in another product. Think about if I'm quoting SPY because I can buy/sell the basket better than my quotes. If the feeds are delayed, I'm less confident in where the basket price really is, so I'm going to demand more compensation in bid-ask spread to put up a price. This wouldn't be a big deal in slow markets but when things really started moving, most derivative liquidity would be pulled entirely. In single names HFTs mostly use these feeds to protect themselves from other high-speed traders and they want the granularity of information for their models. They're already faster than retail guys and banks and always will be. It's not an "unfair advantage" like people think. They just have to get on it if any competitor gets on it, similar to all the fast lines. If 20 HFT shops get on a new fast line, none of them are making more money from it.
minimax 13y ago
The other thing people should understand about the consolidated feeds is that they only show the aggregated size at the best price at each exchange, whereas the direct feeds show you every displayed order in the book. A direct feed is a firehose and requires significantly more network and processing power to actually make sense out of it.

jzwinck 13y ago

What do you think would happen if direct feeds were prohibited and participants had to listen to the consolidated feeds only? This could even include getting one's own fills, if there were a consolidated feed with order IDs included (i.e. you would not know your fills any earlier than anyone else).

cpwright 13y ago
I don't know, but I can't see very many good side-effects, though can think of some negative ones. The first thing I would think is that participants would gravitate towards trading where the SIP is to avoid transit latency, reducing competition for those exchanges that run their own data center and SIP. Also, I'd imagine that there would be a greater risk of getting run over, so spreads would widen to account for it.
hft_throwaway 13y ago
Then HFTs would still win but pricing would widen out since some liquidity is made available because of ability to hedge in another product. Think about if I'm quoting SPY because I can buy/sell the basket better than my quotes. If the feeds are delayed, I'm less confident in where the basket price really is, so I'm going to demand more compensation in bid-ask spread to put up a price. This wouldn't be a big deal in slow markets but when things really started moving, most derivative liquidity would be pulled entirely. In single names HFTs mostly use these feeds to protect themselves from other high-speed traders and they want the granularity of information for their models. They're already faster than retail guys and banks and always will be. It's not an "unfair advantage" like people think. They just have to get on it if any competitor gets on it, similar to all the fast lines. If 20 HFT shops get on a new fast line, none of them are making more money from it.

minimax 13y ago

The other thing people should understand about the consolidated feeds is that they only show the aggregated size at the best price at each exchange, whereas the direct feeds show you every displayed order in the book. A direct feed is a firehose and requires significantly more network and processing power to actually make sense out of it.