Market Data Fees and Lightning

On May 21, the U.S. Securities and Exchange Commission (SEC) issued guidance on what exchanges must demonstrate in order for the Commission to approve a market data fee increase for data products and services. This is a long-standing and highly contentious issue with interests on all sides from the exchanges, brokerages, high-frequency traders, securities trade associations and individual brokers all having a stake in the outcome.   

There is too much in the SEC’s guidance to cover in a single post so we wanted to take a moment to highlight the nature of traditional exchange data fees, why they are cost prohibitive and why we believe Lightning technology can be part of the solution going forward.

The ability to trade equities or other assets is getting easier and easier. As it has become easier to trade, competition for trading revenue has intensified. To compensate, exchanges have turned to data feeds as a growing source of their revenue.   The Securities Industry and Financial Markets Association (SIFMA) states that on average,  their members reported a 967% increase in data fees from 2010 to 2018. The graphic below highlights the dramatic rise in data feeds across multiple data products from the New York Stock Exchange (NYSE):

SIFMA Report on Market Data and Market Access

While SIFMA’s study focused on NYSE, you will find the same pattern of fee increases across almost all major exchanges.  

IEX (The Investors Exchange) put out a report in January of 2019 where they disclosed the cost to provide order book data for their exchange and what they pay other exchanges for the same data:

IEX Study on Cost of Exchange Services

The difference in cost of providing data in relation to price is startling.  It should be noted IEX is a competitor exchange.

It’s worth highlighting that there are differences in fees for professional versus non-professional customers. However, the largest fees, namely access fees,  are the same regardless of use case. For the NYSE Integrated Feed, a non-professional investor only pays $16 a month. But the access fee is $7,500 a month. That assumes no display or sharing of data. It is only for internal use. Clearly this is not affordable for most individuals. Thus, anyone wanting to access this data for themselves must go to one of the exchanges licensed third party providers. This makes it more affordable but also introduces other issues such as latency and stability and can still be quite expensive.

How Lightning Changes Market Data Fees

There is a way exchanges can continue to grow and be profitable while meeting SEC policy goals of fair use and access to data. That solution is Lightning technology.  

Lighting technology enables exchanges to offer new pricing models for their data services thru micro-pricing. With the ability to do fine-grain pricing, exchanges can offer data service to not only traditional clients of high-frequency trading firms, brokerages and retail investment services, but now they can extend their products to individual investors.

Rather than bundling all data into a single massive API and charging flat fees, Lightning enables a “metered” system. What this means is you pay small fees for time units which can be as small as seconds or as long as days, hours, weeks and so forth. This is the same strategy Jeff Bezos used to build Amazon and turn around the Washington Post; charge less per customer but distribute globally.  

Note, nothing in Lightning prohibits exchanges from offering set fees using Lightning.  For example, if a customer wanted to pay a flat fee for weekly or monthly access to a data service.   Lightning just enables other more flexible pricing options.

Consider Apple (AAPL) – tickers, trades, and order books. Currently, if you only wanted to track and trade Apple, you would still need to purchase the entire data feed from the NYSE or one of their licensed distributors. As we have seen, these fees can range into the thousands of dollars per month.

On Lightning, you can choose to get only Apple information. You only have to pay for the data you actually want and use. On Lightning, you don’t have to take all the data all the time (of course you can if you wish) but you can only stream data for 10 minutes, 20 minutes or whatever an investors use case may be.  They may want to only get trading data every 2 minutes. With Lightning, the feed can be constructed so you are only charged for the data you actually use.

For example, on the Suredbits Crypto APIs, we currently charge $.0001 for an average minute of streaming data. If a trader wants to track and monitor only Bitcoin to USD trading pair on a specific exchange for 15 minutes, that comes out to roughly $.0015. And a trader can stream this whenever they wish.  

**Disclaimer: Suredbits APIs are in beta. Pricing is subject to change as we experiment.**

Another key benefit of using Lightning is customers can plug in and immediately start streaming data.  Lightning allows anyone to hoo into the exchanges API and receive market data information instantaneously.  No lengthy sign-up process is required. No credit card information is necessary.

Again, this is a feature of Lightning that exchanges can use to bring more customers to their platform.  Exchanges can still require account creation for other business or regulatory purposes if they wish.

One other use case Lightning APIs enable is permissionless derivatives. A derivative requires a data feed indicating what the indexes price is to be able to settle the derivative. With Lightning, you can allow people to build derivatives on top of your spot market while still being compensated for your market data. This will push more volume to your spot product and drive more revenue to your market data product since permissionless derivatives are dependent upon it.  We will explore this more in a future post.   

Takeaway

Fees for traditional market data feeds are increasing and show no signs of stopping. This is causing significant concern by both the SEC as well as securities professionals who are concerned with fair and accessible market data services. Lightning technology and the Lightning Network offer an opportunity for traditional exchanges; NYSE, NASDAQ, CME, etc., the ability to maintain their profitability and service to their traditional customer base while extending their data products to a new global audience of individual and small group investors. Lightning makes this possible by enabling micro-pricing that is both secure in terms of payment and privacy but also eliminates cumbersome sign-up and registration.


All of our API services are built using Lightning technology and the Lightning Network. All API services are live on Bitcoin’s mainnet. Our fully customizable data service allows customers to stream as much or as little data as they wish and pay using bitcoin.

You can connect to our Lightning node at the url:

038[email protected]ln.suredbits.com

To learn more about how our Lightning APIs work please visit our API documentation or checkout our new websocket playground to start exploring custom data feeds.

If you are a company or cryptocurrency exchange interested in learning more about how Lightning can help grow your business, contact us  at [email protected].  We would love to talk to you.