FIF Asks SEC To Study Impact Of Dow Jones Plan

NEW YORK--The Financial Information Forum is so concerned about the impact that the new Dow Jones policy for calculating and distributing the Dow Jones Industrial Average and charging for the data will have that it has asked the Securities & Exchange Commission to impose a moratorium on the changes.

At the same time, Dow Jones has said it plans to charge 25 cents per user per month for continuous delayed access to the data. Dow Jones previously said it would charge $1 per user for real-time access to the DJIA and other Dow Jones averages (IMD, October 27).

FIF's letter to the SEC, dated November 3, concludes with a request that the SEC place a moratorium on the changes Dow Jones plans to implement, "until the Commission can determine if the modified procedure brings unnecessary risks to the overall infrastructure of the industry, with the only obvious beneficiary of the proposed changes being Dow Jones."

A spokesman for the SEC and a spokeswoman for Dow Jones both decline to comment on the letter.

FIF's letter says that because the DJIA is used as the indicator for circuit breakers, Dow Jones' decision to centralize calculation of the average "creates serious risks for the investment community."

Says the letter: "Centralization of the index calculation creates a critical vulnerability as compared with the distributed calculations done now by many organizations. What will happen if calculation errors are made by Dow Jones or the averages are not available because of computer or communications problems? The Dow Jones Industrial Average is the basis for 'circuit breakers' at the New York Stock Exchange and for derivative contracts at the Chicago Board Options Exchange and the Chicago Board of Trade."

The letter raises other concerns. "The new licensing arrangements could place Dow Jones in a monopoly-like position with the freedom to increase fees and impose new requirements in the future since they will have sole control of the use of the averages," the letter says.

FIF's letter also says that, "Imposing a fee on devices which display the averages will restrict availability of what has become the world's most widely disseminated market indicator."

The letter raises two other concerns related to delivery of the data. "The financial information distribution infrastructures which make the Dow Jones Averages and other critical real-time information available would require modification to impose new control and accounting functions. This Dow Jones action places a new requirement on systems development organizations which are already struggling with system capacity expansion, year 2000 modifications, decimalization and the introduction of the new euro currency."

Finally, says the letter, "Market participants who may be willing to pay additional Dow Jones charges, but who do not currently receive CBOT feeds may be required to do so at additional costs, in order to have access to the averages."

Leo McBlain, FIF's chairman, says Dow Jones' plan "presents enormous work for users and vendors," and benefits only Dow Jones. But even Dow Jones won't be reaping a huge benefit, especially in light of the black eye this issue is creating, McBlain says. About 300,000 to 400,000 desk units receive real-time North American equities information. That represents just $3 million to $4 million a year in revenues from this plan.

FIF is not the only industry group that may be taking action against Dow Jones' plans. The Securities Industry Association's Technology Management Committee "is outraged by the actions of Dow Jones and is considering several alternatives," says Art Trager, vice president and director, administration at the SIA and co-staff advisor to the committee. "They feel what Dow Jones has done is unfair."

Trager declines to elaborate on what alternatives the committee is considering. However, he says the committee is planning to meet this week to decide on a course of action. The committee is made up of about two dozen high-level executives who run the technology areas of their brokerage firms.

When Dow Jones' plans to centralize calculation and distribution of the DJIA and charge a fee for the data were first made public, both market data vendors and users expressed dissatisfaction with the plans (IMD, October 20).

User firms said they resented having to pay for something that had been in the public domain for so long. Market data vendors said the move would mean an increased administrative burden for themselves, and that a January 1, 1998 implementation date was unrealistic.

But Michael Petronella, managing director, Dow Jones indexes, has since indicated that Dow Jones is willing to be flexible on the deadline, as long as vendors were working in good faith toward implementation (IMD, November 17).

--Mary Schroeder