Transitory real‐time property rights and exchange intellectual property

• Date: 01 September 2003
• Published date: 01 September 2003
• DOI: http://doi.org/10.1002/fut.10097
• Author: Robert I. Webb

TRANSITORY REAL-TIME

PROPERTY RIGHTS

AND EXCHANGE

INTELLECTUAL PROPERTY

ROBERT I. WEBB

American exchanges own the price quotations they generate. Access to

real-time price information is highly valued by most market participants.

This enables exchanges to exact royalties from the sale of such market

information. In this sense, an exchange’s ownership of its price quotations

is akin to owning a property right in a perishable commodity (i.e., fresh mar-

ket price quotations) that is most valuable for only a transitory or limited

period of time.The implications of exchange ownership of price data

extend beyond financial markets. Recently, Woodard (2000) has noted that

some internet auction operators have asserted ownership over the prices

they generate. This study reviews the legal origin and nature of the property

right to price quotations generated on U.S. futures exchanges and assesses

whether exchange ownership should be transitory. The legal basis for

transitory real-time (real and personal) property rights is discussed and the

economic implications are considered. © 2003 Wiley Periodicals, Inc. Jrl

Fut Mark 23:891–913, 2003

For correspondence, Robert I. Webb, McIntire School of Commerce, Monroe Hall, University of

Virginia, Charlottesville, Virginia 22904; e-mail: riw4j@virginia.edu

Received November 2002; Accepted February 2003

■Robert I. Webb is the Paul Tudor Jones II Research Professor in the McIntire School

of Commerce at the University of Virginia in Charlottesville, Virginia.

The Journal of Futures Markets, Vol. 23, No. 9, 891–913 (2003) © 2003 Wiley Periodicals, Inc.

Published online in Wiley InterScience (www.interscience.wiley.com). DOI: 10.1002/fut.10097

892 Webb

1Most users of real-time and delayed exchange market data information usually obtain it through a

market data vendor like Reuters or Bloomberg rather than from the exchange itself. Technically,

most futures exchanges only deliver real-time price quotations and leave it to their market data ven-

dors to deliver delayed data to their customers that conforms to the exchange’s required minimum

temporal delay. Real-time price quotations are not strictly speaking real-time as it takes time, say a

few nanoseconds, to deliver the information. Finally, real-time exchange market information is

sometimes provided free of charge to the public for a limited time to encourage trading the instru-

ment in question.

INTRODUCTION

American exchanges own the price quotations they generate. Access to

real-time price information is highly valued by most traders and other

market participants. This enables exchanges to exact royalties from the

sale of such information. Although exchanges in the U.S. routinely assert

ownership of all price quotations they generate, market price informa-

tion is typically disseminated to the public for free or, at a nominal

charge (albeit sometimes with restrictions on its redistribution or resale),

after an exchange-determined delay of 10 to 30 minutes.1In this sense,

an exchange’s ownership of its price quotations is akin to owning a prop-

erty right in a perishable commodity (i.e., fresh market price quotations)

that is most valuable for only a transitory or limited period of time,

although some foreign exchanges exact significant revenue from the sale

of delayed or stale price quotes.

The implications of exchange ownership of price data extend beyond

financial markets, however, and go to the heart of the issue of who owns

raw data and news. Recently, Woodard (2000) has noted that some inter-

net auction operators have asserted ownership over the prices they gener-

ate citing exchange ownership of prices as precedent. This study reviews

the legal origin and nature of the property right to price quotations gener-

ated on U.S. futures exchanges and assesses whether exchange owner-

ship should be explicitly transitory and, if not, whether the length of the

exchange determined delay in the release of futures price quotations for

free, or at a nominal charge, to the public is appropriate.

REVIEW OF THE LITERATURE

In two interesting and provocative articles, Mulherin et al. (1991a,

1991b) examine how exchange rules and contractual arrangements

evolved in response to technological innovations and court decisions.

They contend that technological innovations alone do not result in lower

transaction costs. Rather, technological innovations coupled with more