Exchanges And Financial Websites Battle Over Real-Time Quotes

Yahoo! (YHOO) Finance began to offer real-time stock quotes recently. It got around the huge fees changed by NYSE and Nasdaq by pulling the data from the Bats ECN, an electronics exchange that handles about about 10% of the volume for stocks traded in the US each day. The two exchanges get a large amount of their revenue for charging for real-time quotes, so the Yahoo! deal is a threat to their business.

A few days after the Yahoo! launch, Google (GOOG) Finance began to offer real-time quotes from Nasdaq. The search site did not make any mention of if or when it would offer a similar service from NYSE. Several Dow Jones sites carry the new service, but none of the participants have said why only Nasdaq is offering its real-time quotes at no charge.

It is widely assumed within the industry at that AOL Money site will also begin to put the Bats or the Nasdaq service on its site. It is hard to imagine that it would want a service that does not include NYSE real-time data. If AOL goes the Bats route with Yahoo! about 50% of visitors to finance sites will be using the system.

What is not clear is whether the Bats service will eventually end up being used on all of the major financial sites because it is free or whether the portals will elect to license the data from the major exchanges. Based on conversations with management at the internet companies, running the exchange data could cost $3 million a year.  If use of quotes directly from the exchanges becomes widespread, it is not a competitive advantage for any of the financial sites. The NYSE and Nasdaq will be receiving tens of millions of dollars for something that is likely to become useless for pulling in extra traffic for any single site. Once everyone has it, the power of being early to market is gone.

The Bats program may pressure the exchanges to exit selling real-time quotes to individual investors. Bats data is not identical to exchange data because it only shows prices for a percentage of all trades. But, especially for widely-traded stocks, the quotes are likely to be identical to those streamed from the NYSE and Nasdaq. For stocks with less volume there may be some price dislocation. What casual investor want to pay a monthly fee for something which is available for free?

Institutional traders will continue to need exchange data for its completeness. Heavy retail traders usually get real-time exchange data from their discount brokers. For most people who simply want current price data that is not delay for 20 minutes, Bats is more than adequate.That means that the exchanges are about to lose a piece of their revenue, unless they want to substantially lower their prices.

Douglas A. McIntyre

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