At the 2001 WFA, I had a brief conversation with Jim Cochrane from the NYSE, in which I asked him for permission to distribute (at cost) to academics and/or to both academics and non-academics a data base derived from TAQ. My intent was to provide 4 times daily: mid-points between bid-and-ask plus some spread mesaures. The data base was highly refined, did not contain any raw data from TAQ, and fit into about 1GB. It would have been much easier to use than TAQ, which is very difficult for a number of reasons.
After putting in more creation, packaging, and cleaning effort, I eventually decided to double-check with the NYSE. To my surprise and disappointment, Paul Bennett (the new economist) changed his mind. After another dozens or so emails, and despite my offering at one point to distribute the data base completely for free and/or only to university subscribers of TAQ, the NYSE decided against permitting any distribution at any price.
The NYSE has been a good supporter of academic research in the past. This made its attitude all the more surprising to me---and disappointing. I had invested quite a bit of time into creating this data base, some of it after talking to Jim.
Ultimately, the NYSE is the upstream monopolist of share price data, so there was no alternative than for me to let this data base die. Incidentally, all variables in the proposed data base were derived, and not original to TAQ. There is a mildly troubling consequence here: the NYSE does have the legal right to stop distribution of papers/statistics/etc. derived from data it owns. It has chosen to exercise this right only in the admittedly relatively extreme case of my derived data base. But, legal ownership of share price data belongs to the NYSE; it has the power to deny or charge for approval for the distribution of any statistics derived from share prices. In my opinion, together with recently issued patents for financial methods (including formulas and procedures), such ownership of share price and trading data represents a long-term threat to academic research.
For general reading pleasure, some excerpts from the email conversations are below. As I stated, I was surprised.
Date: July 2001 From: Ivo Welch Hi Jim: Sorry to be such a pest, but would it be possible for this guy to get back to me? Our own legal department at Yale wants to know if I truly have a release from the NYSE for using TAQ in the creation of the ICF-SD. regards, /ivo
Date: July 31, 2001 From: Paul Bennett Dear Professor Welch: Based on your message to Jim Cochrane, I infer you did not receive my earlier message. The NYSE data that you requested to use are proprietary and hence may not be distributed in any form to others. If you have further questions, please feel free to contact me directly. Yours truly, Paul Bennett
Date: August 8, 2001 From: Ivo Welch To: Mark Schaedel/MDS/NYSE@NYSECORP, Paul Bennett/Research/NYSE@NYSECORP Dear Mr. Schaedel: I have a peculiar situation. I am a professor of finance at Yale, and have been working on research using the TAQ data. Eventually, it occurred to me that TAQ was very difficult for ordinary research, and that a derivative of TAQ which woul offer only averages computed from TAQ would be of more use to most researchers. So, I started working on creating a data base (called ICFSD) that is derived from TAQ. I had plans to distribute ICFSD basically at cost: about $300-$500 for a university, $3,000 to institutions---without any annual license fees and lower fees for poor or foreign universities. The ICFSD fee cost would cover some program development, a web computer and interface, ongoing updates, etc. I had expected revenues of about $10,000 to $20,000 per year. This was less for data, and more for maintenance and code. Almost all potential ICFSD purchasers would be clients already paying for their TAQ license. (This would be easy to ascertain at purchase). Further, being derivative, ICFSD shares almost no numbers with TAQ. (It currently fits on a CD-ROM.) Even though I believe copyright does not apply to derivatives, I am not a lawyer, and, in any case, I would certainly not want to jeopardize my and other researchers' relationships with the NYSE by distributing ICFSD without the NYSE approval. I originally talked to Jim Cochrane and had the impression that this would be in the spirit of TAQ, but eventually the market research group seems to have felt that this would require a license from your department. I was not planning to make much money here. (I even considered distributing my work for free if this solved all the concerns.) First and foremost, I need an "easy" way to collect any license fees you would want to charge for my redistribution here. (I am a professor, not a company.) Is there an easy way for me to get your permission to distribute the ICFSD? There is a (secret) web location at http://welch.econ.brown.edu/icfsd/ that has a little bit more information. Sincerely, /ivo welch
From: mschaedel@nyse.com Date: 08/22/2001 Ivo- Sorry for not getting back to you sooner! I appreciate your patience as we work through the details of this proposal and what it means to our entry into this space. We are mainly concerned with the commercial redistribution aspect of your proposal as it may undermine our ability to deliver a potentially competitive product in this space. As you know, the costs associated with supporting a product of this magnitude are significant. Allowing competitors to provide commercial product while essentially subsidizing their costs to do so threatens the viability of our providing this data at a reasonable cost. I am pursuing the notion of segmenting our business model and allow for academic redistribution of this data for a modest licensing fee. The fee would cover our costs. The license would allow you to redistribute to universities and researchers but not commercial users. I will be back to you shortly with a proposal for how this could be structured. Please feel free to call me directly for discussion. Regards, Mark Schaedel Director, Market Data New York Stock Exchange 11 Wall St 22nd Fl New York, NY 10005 (212)-656-5418 mschaedel@nyse.com
From: mgurliacci@nyse.com Date: 08/22/2001 To: mschaedel Yes, we should completely restrict him from doing anything with commercial users. Also, maintaining who-bought-what with TAQ is not as easy as it sounds, but we do this tracking and correspond frequently with Wharton for their academic redistribution (Liz Landry handles this). We require all users to buy TAQ from us directly before seeing it on WRDS. No commercial users. All these academics are looking for an angle to make a buck...
From: mgurliacci@nyse.com Date: 08/22/2001 Ivo, We haven't met, but Mark Schaedel notified me of your interest in redistributing calculated data using TAQ. Mark also informed me that my email below came on too strong. I apologize. We've had a lot of requests here for TAQ redistribution as well as people not even asking permission before redistributing, and that translated into too harsh a tone. Additionally, you were properly going through channels. Our goal in Research is to have TAQ used as widely as possible for academic research into our markets. It is also used by commercial users, and we've had many discussions with our Market Data people to work out a compromise for these non-academics. We've even discussed a total ban on noncommercial use of TAQ so we could concentrate solely on the academic users. Commercial users would have to purchase TAQ-like data through Market Data. We don't make money on TAQ, and we want money-making enterprises to work through Market Data with redistribution agreements. We also have to closely study any academic proposal that comes to our attention. But again, sorry for my tone. I look forward to working with you and Mark Schaedel on your proposal. Mark Mark A. Gurliacci Managing Director Research 212.656.5671
Date: 11/26/2001 From: Ivo Welch To: mschaedel@nyse.com, pbennett@nyse.com, jcochrane@nyse.com Hi Mark: I left another message for you with someone what sat at your desk about 10 days ago. I can imagine that life has been very busy at the NYSE these days, but since I have been trying to get a hold of you since August, I am beginning to despair. I still believe that our goals overlap quite significantly, so we should be able to work something out: Let me make a simple proposal, that I hope will get the ball rolling to allow me to distribute ICFSD: [1] For TAQ subscribers, pick a reasonable percentage of ICFSD sales revenues that I should return to the NYSE. This would also allay the complaint that I am out to make a buck, while the NYSE is out to support research. If I sell my version of the data base for very cheap, obviously *both of us* will not make much money. If I sell it for expensive, the NYSE will get a good fraction of the money. (PS: For TAQ subscribers, I am really selling them my programs and advice/services, not any new data. You already licensed the data to them, and presumably are ok with someone else selling them programs.) [2] For non-TAQ subscribers, please let me know whether I can charge them for TAQ and remit the revenues to the NYSE. Alternatively, if I can provide them simply with my data base w/o TAQ, please let me know how much (either in percentage or fees) you would like me to charge non-TAQ-subscribers for the TAQ component. (The same applies to more recent TAQ subscribers, if you want to treat them differently from [1].) Also, if a resale license to TAQ is priced affordably for my research budget, a better arrangement may be for me to buy one. Chances are that I will not be able to afford it, though. [3] The NYSE has the right to terminate this agreement at will. I expect this to be terminated if the NYSE begins selling something similar. [4] If the NYSE wants any branding rights, resale rights, credits, or anything else, please let me know. As additional mitigating factors, you might want to take the following into account: * I believe virtually all data on the ICFSD is derived, and not original. I.e., ICFSD reports summary statistics, which usually do not allow anyone to infer the original data on TAQ. If someone needs TAQ data, they need TAQ data, not ICFSD. * All money will go to Yale University, and support research at the International Center for Finance. No money will go to me personally. * Availability of the ICFSD data base will spur more widespread research on market microstructure issues. * Accdg to [2], ICFSD may get you more TAQ subscriptions. * Many years ago, I gave away the original C++ access code for TAQ to the NYSE, which forwarded it to other users of TAQ. I never asked for anything in return. Best Regards, /ivo
This continued for another 10 or so messages. In the end, I received only a definitive no at any price.