Securities Information Processor (SIP)
A Securities Information Processor (SIP) is a system that consolidates and disseminates real-time market data from multiple trading venues into a single, standardized feed. SIPs play a crucial role in maintaining fair and efficient markets by providing a consolidated view of trading activity and establishing the National Best Bid and Offer (NBBO).
Core functions of SIPs
SIPs serve as the official source of consolidated market data in U.S. equity markets, performing several critical functions:
- Data consolidation - Collecting and combining quote and trade data from all registered exchanges and trading venues
- Price determination - Computing and disseminating the NBBO
- Regulatory compliance - Supporting Regulation NMS requirements for market data dissemination
- Market transparency - Providing fair access to consolidated market information
Market data consolidation process
The SIP consolidation process involves:
- Receiving direct feeds from exchanges and trading venues
- Normalizing data formats
- Sequencing messages by timestamp
- Computing derived data like NBBO
- Disseminating consolidated output
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SIP governance and operation
In the U.S. markets, there are currently three main SIPs:
- Tape A (NYSE-listed securities)
- Tape B (NYSE Arca and regional exchange-listed securities)
- Tape C (Nasdaq-listed securities)
The SIPs are operated by Securities Industry Automation Corporation (SIAC) for Tapes A and B, while Nasdaq operates Tape C.
Performance considerations
SIP performance is critical for market efficiency:
- Latency - Processing and distribution delays affect market quality
- Capacity - Must handle peak message rates during high volatility
- Reliability - System redundancy and failover capabilities
- Data quality - Accuracy and consistency of consolidated information
Market structure implications
SIPs play a vital role in:
- Price discovery
- Best execution requirements
- Market surveillance
- Regulatory compliance
- Market access fairness
Modern market structure challenges include:
- Speed differentials between direct feeds and SIP data
- Market fragmentation effects
- Complex order types and trading mechanisms
- Increasing market data volumes
Recent developments
The SEC has approved plans to modernize the SIP infrastructure:
- Expanded data content
- Reduced latency targets
- Competitive consolidator model
- Enhanced governance structure
- Improved resilience requirements
These changes aim to address evolving market needs while maintaining fair and efficient markets.