Market data and the prisonerís dilemma
First Published Wednesday, 14th September 2011 02:28 pm from Fidessa : Steve Grob
The opinions expressed by this blogger and those providing comments are theirs alone, this does not reflect the opinion of Automated Trader or any employee thereof. Automated Trader is not responsible for the accuracy of any of the information supplied by this article.
The prisoner's dilemma is an aspect of href="http://en.wikipedia.org/wiki/Game_theory"
target="_blank">game theory that shows why two
individuals might not agree, even if it appears that
it's best to do so. In its simplest version, two
prisoners have to decide whether to assist or betray one another.
If they co-operate then they both receive relatively light
punishments, whereas a betrayal by one prisoner means that the
other is severely punished whilst the betrayer goes
It seems like a similar situation is
playing out (again) in Europe over the href="http://www.efinancialnews.com/story/2011-09-12/trading-industry-prepares-for-market-data-supply-battle"
target="_blank">consolidated tape. It's a
complicated issue and different industry bodies are naturally
trying to achieve the best outcome for their members. The problem
is that the players concerned have different outcomes in mind.
The exchanges want to protect their market data revenues whilst
the MTFs want to challenge the monopolies of the big boys. The
brokers want lower market data fees and the buy-side wants to be
able to make sense of best execution. Hardly surprising that
progress on finding a way forward has been slow.
But, just as with the prisoner's dilemma, all these
participants need to decide if mutual co-operation is better than
trying to outflank one another. Maybe the only realistic outcome
we can expect is that everyone ends up equally dissatisfied and
there can be no outright winner in this version of the game. A
colleague suggested to me that one thing that would help would be
the imposition of standardised market data contracts. It may
sound like a small point but, in many instances, the legal and
compliance burden of negotiating different market data contracts
with every venue in Europe is often more onerous than actually
doing the technical work. If you think this would make a
difference then click below and I'll forward to
Meanwhile, and after four years, the
European securities industry is still struggling to make sense of
the effectiveness of MiFID as no two measurements of the results
produce the same answer.
Note: There is a poll embedded
within this post, please visit the site to participate in this