Every time you click on your computer to check a stock price, the cash register rings at the nation's stock exchanges.
Brokers paid the New York Stock Exchange, the American Stock Exchange and the Nasdaq Stock Market a total of $339 million last year to obtain for themselves and their customers the latest stock prices paid or the best prices being offered.
This revenue stream will become even more important to the exchanges if, as expected, the NYSE and Nasdaq convert to for-profit enterprises. Both groups will need to boost earnings to impress shareholders and also find ways to fund their costly self-policing operations.
But discount online brokers, led by industry leader Charles Schwab & Co.--which last year paid the three exchanges $19 million in market data fees--insist those are the very things that the fees should not be used for.
At the heart of the issue is this: Who should pay for the regulation of the stock market, and what is a fair price to be paid?
The Securities and Exchange Commission will issue a "concept release" today that will solicit answers to these and other questions.
Congress mandated a consolidated system for distributing market data in an effort to ensure that stock-market information was accurate and widely accessible. The securities markets were allowed to charge a reasonable rate for gathering and distributing that information.
Robert Britz, executive vice president of the NYSE, said the exchange has acted responsibly. He noted that the NYSE recently slashed fees after usage surged and costs fell, and that its market data is widely available on television and cable stations and on World Wide Web sites.
But discount online firms say stock markets do not disclose enough information to justify the fees, a problem they say will worsen when the markets become for-profit corporations.
"You will have a government-mandated monopoly over the most important information of the market--really the oxygen of the market--totally controlled by a for-profit entity," said Carrier Dwyer, Schwab's general counsel.
Market data fees are a major source of revenue for stock exchanges. Last year, the NYSE collected $112 million in such fees, representing 15 percent of the exchange's total revenue. Nasdaq does not disclose its market data fees, according to a spokesman.
Discount online brokers, under heavy competitive pressure, say the fees should be no higher than needed to cover the costs of collecting the information and disseminating it.
NYSE officials say the market data fees the exchange collected last year were far less than the $202 million it spent to produce and distribute the data. The NASD declined to comment on this issue.
Even if fees were shown to exceed the real costs of collecting and distributing data, it's not clear regulators would order them reduced. That is because the bigger issue facing the SEC is whether market data--one of the most valuable assets created by the stock markets--should be used to finance the markets' regulatory operations.
The NYSE and Nasdaq must monitor the trading behavior of their members to prevent market manipulation and ensure that the members comply with financial requirements and sales-practices rules. These efforts are costly, so the SEC is expected to examine whether and how much of the data fees should go to fund them.