What the SIP Does
The SIP collects real-time quote and trade data from all national securities exchanges, consolidates it, calculates the NBBO, and distributes this information to market participants and the public. The NBBO that governs order protection rules and best execution assessments is calculated by the SIP. All market participants — including Citadel Securities — are required to adhere to the NBBO in their order execution.
SIP vs. Proprietary Feeds
A significant controversy in market structure involves the speed difference between the SIP and proprietary data feeds offered by exchanges. Exchanges sell proprietary feeds that deliver market data faster than the consolidated SIP tape. Market makers including Citadel Securities use proprietary feeds; many retail investors and their brokers rely on SIP data. Critics argue this creates an unfair two-tier market.
SIP Reform
The SEC updated SIP governance as part of its 2020 market data infrastructure rules, including reforms to how the NBBO is calculated and who has governance representation in SIP administration. These changes were designed to reduce the competitive advantage of proprietary feeds over the consolidated tape.
Why SIP Matters for Retail Investors
The NBBO calculated by the SIP is the reference price for retail order protection. If the SIP is slower than proprietary feeds used by market makers, there can be a gap between the NBBO as market makers see it and the NBBO as retail investors' brokers see it. This gap is a potential source of retail investor disadvantage that market structure reform efforts have sought to address.