The Problem with SIP: How Regulation Reinforces an Unfair Market¶

The SIP (Securities Information Processor) was created to ensure transparency and protect investors by consolidating quotes and trades from all U.S. equity exchanges into a single public feed. But in practice, it's now one of the biggest obstacles to fair and sustainable market structure.

Here's why SIP makes markets unfair for the little guy:¶

1. The SIP is slow¶

Direct feeds from exchanges are hundreds of microseconds faster. High-frequency traders (HFTs) use those faster feeds to see and act on market changes before the SIP updates.

2. The SIP defines the NBBO¶

Regulation requires brokers to route orders based on the SIP-defined National Best Bid and Offer (NBBO). That means brokers are legally bound to use stale data, while HFTs operate on fresher information.

3. It enables latency arbitrage¶

HFTs can predict SIP updates based on trades they see on one exchange, allowing them to race ahead of retail orders still waiting on delayed data.

4. It mandates fragmentation¶

Any new equity exchange must be included in the SIP. This forces the system to scale horizontally with every venue, increasing complexity, data volume, and latency. It's not sustainable.

Final thoughts¶

Dodd-Frank strengthened these requirements with good intentions - but the result is a two-tiered market:

1. One for firms with the infrastructure to consume direct feeds.
2. One for everyone else, stuck behind a bottleneck the rules require.

It's time to ask: should a slow, centralized feed continue to define "best execution" in modern markets?