Securities Information Processors (SIPs): Current Structure and Potential Changes

The three-hour trading shutdown of Nasdaq listed securities on August 22, 2013 brought to light the critical role of Securities Information Processors (SIPs). A similar 6-minute in duration failure of the Nasdaq SIP also occurred on September 4, 2013. During the August 22 failure, Nasdaq’s SIP went down, resulting in Nasdaq halting trading in Nasdaq-listed stocks. This action was deemed a necessary action because the SIP distributes quotations and transactions in those securities. While the New York Stock Exchange (NYSE) and Nasdaq both provide proprietary data feeds to certain investors who specifically pay for those proprietary feeds, no other SIP provides competing services to disseminate quote and trade information to all investors. Therefore, the temporary failure of Nasdaq’s SIP resulted in no trading in Nasdaq-listed stocks. This highlights SIPs as being potential single points of failure for the equity markets. By David E. Franasiak, Joel G. Oswald, Eric Robins and Rebecca Konst.

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