By Lou Pastina, Managing Member, Global Markets Advisory Group
With assistance from Jim Buckley, Member, Global Markets Advisory Group and Ron Jordan, Consultant, Global Markets Advisory Group
I worked in the securities markets for a long time and was used to having access to real-time market data to research issues that came up at work. “Time and Sales” were an essential part of the toolset to figure out what happened, when it happened and where. This information was not always available historically and it wasn’t until the Congress and the SEC enacted the National Market System plan known as the “Consolidated Tape Association” that all sales and quotes were gathered and integrated to provide a single source of data for every stock, regardless of the market on which they traded.
I have been out of that job for almost five years now and no longer have “professional” access to that data. I am a retail investor relying mostly on the delayed market data services that many outlets utilize. I remember from my time in the markets that the reason they use that delayed data is because the Consolidated Tape provides it to investors for free. And as anyone knows in the industry – real time market data pricing has been a battlefield between Exchanges and brokerages and banks for a long time.
So, I don’t have access to a Bloomberg Terminal or even the less expensive services like Quodd. I do trade securities from time to time though and I usually check the prices I receive against my iPhone. But something funny happened recently. When I received an execution of a Good ’til Cancel Limit Order, which I placed with my brokerage firm, I looked at the Yahoo trade prices on my iPhone and realized they weren’t anywhere near where the high of the day was, at least according to my phone.
Of course, I loved the execution and thought some great mistake was made in my favor and didn’t want to ruin that happy ending! But I was curious, so I called an assistant on the desk and was assured that I did sell at almost the high of the day and was sent a picture of the chart. So, I looked at the chart and it was the same one on my phone. Not wanting to upset the apple cart, I said thank you, I love the trade.
But there are no free lunches, and brokerage firms don’t make mistakes like that. So, I called my brother at a bank and asked can you check? My brother loves me but questioned my sanity and asked me if I really had spent 31 years working at the world’s premier stock market. He sent me the same chart which of course on my phone showed a price three bucks under the high of the day.
Still confused, I reached out to my good friend who had years of experience in the NYSE’s market data business. He pondered for a moment, and said, “I know what the problem is”.
He told me to go the Yahoo Finance page with the pricing chart, and to scroll down to the bottom of the page and read to him the disclosure in tiny, tiny print. And so, I did, and there it was:
“Trade prices are not sourced from all markets”.
I asked him what the heck that meant. He explained that stock exchanges have the ability to provide their own real-time prices apart from giving them to the Consolidated Tape. The larger exchanges will charge, the small exchanges generally do not charge. He surmised that Yahoo probably bought its market data from only one market, probably a smaller exchange providing free data. Thus, if the high for the day happened on another market, the price shown on Yahoo might not be the true high.
So here is the question: how can retail investors making their own trading decisions know the correct prices if they don’t have access to the data? Various internet outlets and most brokerage firms pay for all the data, but not all internet outlets do so. Retail investors can generally subscribe to real-time prices in all stocks and all markets through their broker or vendors for a monthly fee, which is generally less than a cup of coffee at Starbucks.
To my further chagrin, my friend then postulated on the identity of the market that was the source of the pricing data I had viewed on my phone; that market has only a 16% market share of equity trading in the US — 16% of the trading means the pricing data on my phone reflects only 16% of the trade prices!!
It would be nice if Congress and the SEC looked after the little guy again. Isn’t that what they are supposed to do?