Nasdaq Awarded Contract to Continue to Manage the SIP

On November 5^th, NASDAQ won a bid to continue to manage the Security Information Processor or SIP for a large number of stocks. The Security Information Processor collects, consolidates data from quotation and transaction reports in securities from the 11 public exchanges. Nasdaq has been managing the SIP before this vote but refused to renew the contract unless changes were made to the technology.

Nasdaq wanted to make these changes to the technology because the SIP had a three hour outage in August 2013.  Since the outage, NASDAQ has made multiple changes in order to reduce latency and upgrade the system.  They also made improvements in resiliency and availability.  Latency has been reduced by 58% and when they move the SIP to the new INET technology they expect that it will be reduced to 50 milliseconds and after a year to 25 milliseconds. They have also agreed to a Service Level Agreement which requires them to have the system up and running 99.98% of the time and to help with this they will put a hot backup system in place.

The Committee that made the decision had 11 bids which they narrowed down to 2, NASDAQ and Tethys. Eventually they chose Nasdaq because of its past reputation managing the SIP and their commitment to reducing latency and having very little downtime of the system.

At a recent conference at Baruch College, a panel discussed the latency issues with SIPs (The NYSE manages two as well).  Some members of the panel suggested that there should be multiple SIPs at each data center to reduce latency. Others though stated that it would be confusing to have multiple NBBOs.  I agree that you should not have multiple NBBOs because I think there would be added confusion and complexity especially with the trade through rule.

Overall, I think the committee made the right choice awarding Nasdaq the bid.  Nasdaq seems to be devoted to reducing any issues since that outage in August 2013.  I also believe that while going through the process of making changes to the SIP and upgrading the technology in order to make it more reliable; it was a good choice to have Nasdaq continue to manage the system.  Though Tethys has experience managing systems for SEC, I think when there are changes like this it is better for all the upgrades and changes to the system to be completed before the control of the system is moved to another firm. Nasdaq has experience with the system and has already completed some of the upgrades to the system within the last year so they should be able to do a better job at managing the migration while making sure they meet the SLAs.  Also, since Nasdaq has shown improvements since the outage I think there is no reason to take the risk of changing the management of the system.

Article:

http://www.wallstreetandtech.com/infrastructure/nasdaq-omx-won-over-sip-committee-with-latency-reductions-and-tech-upgrades/d/d-id/1317316