Nanex Research
Nanex 04-Apr-2014 ~ Direct vs SIP Data Feed
The animation below shows how a trade or quote executing on an exchange makes its way
to the SIP (Securities Information Processor) and a Direct Feed used by High Frequency Traders (HFT).
Reg NMS requires that an exchange (A) send data to the SIP (C) as fast or faster than
it sends that data to direct feed subscribers (B). Here's the relavent text from
Regulation NMS:
Rule 603(a)(2) requires that any SRO, broker, or dealer that distributes market information must do so on terms that are not unreasonably discriminatory. These requirements prohibit, for example, a market from making its "core data" (i.e., data that it is required to provide to a Network processor) available to vendors on a more timely basis than it makes available the core data to a Network processor.
This is the same rule that NYSE broke and was
fined $5M by the SEC in September 2012. We have a
nice write up summarizing this fine as it applies to the SIP. Unfortunately,
this practice continues at other exchanges. In the animation below, note that the information
sent to the SIP has to travel significantly farther distances (40 miles vs 1000 feet),
on a slower network (1 GBps vs 40 GBps) with a protocol that adds more latency (TCP
vs UDP) than the same information sent to the direct feed. Sometimes this latency on
the input side of the SIP shows up in SIP data as fantaseconds (a term we coined to
describe trades printing before quotes). See this
well documented example.
Timestamp Fraud
The animation also shows something that many aren't aware of: the original time stamp
gets stripped, and replaced with a fresh time stamp when the SIP transmits it to a subscriber!
Watch the time stamp in the box get stripped when it enters, and replaced when it leaves,
the circle labeled "Tape A".
Nanex Research
Inquiries: pr@nanex.net