U.S. Markets

Exchange fee fight moves from NYSE floor to data center rooftop

NEW YORK (Reuters) - The fight between brokers and exchanges around fees and access to trading information has moved from stock exchange floors to data center rooftops.

FILE PHOTO: A specialist trader works at a Virtu Financial booth on the floor of the New York Stock Exchange April 16, 2015. REUTERS/Brendan McDermid

A move by the New York Stock Exchange to install microwave equipment on the roof of its data center to speed up data transmissions is "anti-competitive" and could result in higher trading costs, trading firm Virtu Financial VIRT.O said in a letter to the U.S. Securities and Exchange Commission.

Virtu opposed the NYSE’s plan because it would allow only one wireless provider - chosen by the exchange - to locate an antenna on the rooftop of the exchange operator’s Mahwah, New Jersey, data center, due to “resource and engineering constraints,” according to the letter, which was posted to the SEC’s website on July 25.

NYSE, which is owned by Intercontinental Exchange Inc ICE.N, declined to comment, as did the SEC.

Microwaves carry data more quickly than fiber optic cables, allowing firms that use high-frequency trading strategies, including Virtu, to complete algorithm-driven trades at close to light speed.

If its plan goes forward, it could effectively give NYSE a monopoly over access to the fastest data, allowing it to charge exorbitant fees for access to its antenna, while shutting out potentially lower-cost wireless providers, Virtu said.

Just as NYSE would never have been allowed to sell space on its exchange floor at a premium price that advantaged one member over others, neither should it be allowed to do the same with rooftop access, Virtu argued.

“The reality is that the new ‘floor’ of the NYSE is actually now located on the roof of a nondescript data center in Mahwah,” Virtu said.

The disagreement is part of an ongoing dispute over the cost of market data, with Virtu, one of the world’s largest trading and market-making firms, one of the most vocal critics.

Market data, including bids, asks and last sale prices, is essential to trading, but is also one of the biggest revenue sources for many exchanges.

Last year the SEC put a wide swath of exchange fees under review as part of a broader effort to improve transparency around exchange pricing. In May the regulator also released guidance telling exchanges to improve justification of their fees or continue to have them temporarily suspended and reviewed.

Virtu is also one of nine founding members of the Members Exchange, a low-cost bourse being built to challenge NYSE and Nasdaq Inc NDAQ.O.

Reporting by John McCrank; Editing by Dan Grebler