The Members Exchange (Memx) finally announced last week that it will begin charging fees for its market data in April this year. The low monthly per-user fees (along with higher, enterprise-wide fees) live up to the exchange’s promise to deliver lower fees for data than the rest of the industry, but also serve a serious purpose in reducing the compliance burden faced by firms designating whether end users should be classed as professionals or non-professionals.

Memx will charge $0.01 per user, per month for professional users and non-professional users alike to subscribe to top of book or last sale data, and is part of the exchange’s aim to reduce firms’ overall data costs. In this case, the fees are not only low, but also help lower administration costs, officials say.

“The administrative burden and costs around the classification of displayed data subscribers as professionals and non-professionals has been at the top of the list of complaints when it comes to the market data space,” says a Memx spokesperson. “Firms may incur significant audit fees for unintentionally misclassifying and misreporting professionals and non-professionals because professional user fees tend to be much higher than non-professional user fees.”

Although an added benefit of charging the same fee for professional and non-professional users is that there is no incentive for firms to try to save money by intentionally misclassifying professional users as non-professionals, the spokesperson says this was not a consideration in setting the fees. “We did this to reduce complexity and risk exposure. We don’t believe firms intentionally misclassify users,” the spokesperson says.

However, the issue of correctly classifying professional and non-professional usage is rife with complexity and risk, with significant grey areas existing around what constitutes non-professional usage. On the other hand, determining whether an individual should be classified as a professional or non-professional user is easier said than done. Not only do definitions vary by exchange, they can also be counterintuitive.

For example, someone placing a retail-sized trade using their personal Robinhood account from home outside of work hours might intuitively appear to be a non-professional user. However, they might still be considered a professional user if they hold certain qualifications, or happen to work at a financial firm—even in a non-trading role—and would be subject to the same per-user fees as professional traders.

For Memx, its definition of a non-professional data user is more than 170 words long (see “Non-pro definition” box below). In contrast, its description of a professional data user is barely one line: “Any data user other than a non-professional data user.”

Therefore, the definition of “professional” is dependent on the definition of “non-professional,” and how an individual is designated on one venue may differ on others. (Click here for a more in-depth look at the professional vs. non-professional data fee challenge.) Thus, even though Memx’s fees may reduce the cost exposure for firms, even a slight variance in definition from other exchanges contributes to a higher overall administration cost burden.

Indeed, one market data expert says firms will still face these costs associated with reporting and complying with data licenses and usage terms, though the low fees should encourage usage.

“The real pain for end-user firms is often the reporting—the need for entitlement controls, the understanding of where the data is going and being used, non-display matters, and the disparate definitions from exchange to exchange,” the expert says, adding that the cost of performing these tasks remains the same regardless of the fee being charged. “What the lower fees means is that if there are compliance issues, the fine—back fees, penalties, interest—will potentially be minimized.”

However, the expert questions why charge any per-user fee at all. “If they really don’t care about the per-user licensing fees (which is reflected by such a nominal fee), why not just charge an access fee and be done with it? … Why charge anything at $0.01? Obviously, it’s more about the reporting of users—how many, where, etcetera—that is more critical for Memx,” the expert says, adding that establishing these ground rules at the outset could pave the way for higher fees—or perhaps “to charge more aggressively in the future to non-members and vendors” for Memx data.

Of course, the $0.01 per-user fees aren’t the extent of Memx’s data fees. Indeed, the exchange has published a matrix of fees that it plans to charge for different services (see chart, below, or a full description on Memx’s website). These range from $500 per month for internal use of its last sale data to $10,000 per month each for unlimited distribution of top-of-book and last sale prices to professional and non-professional users.

In a communication sent to members, the exchange states that its monthly fees for market depth data are 25% lower than comparable exchanges, and its fees for those using data in non-display trading systems or internal matching systems are at least 20% lower than comparable exchanges.

The spokesperson cites two examples of how the fees would add up in real-world use cases. In the case of a retail broker subscribing to top-of-book and last-sale data, the broker would pay a monthly external distributor fee of $2,000 for each dataset, plus $0.01 per user (whether professional or non-professional). In the event that the firm is serving data to more than 1 million users, “the enterprise fee would kick in and they would pay no more than $10,000 per month in user fees,” the spokesperson says. In the case of a proprietary-only trading firm subscribing to market depth data, the firm would pay an internal distributor fee of $1,500 per month and a non-display fee of $4,000 per month to use the data in a trading platform, the spokesperson adds.

“Our new fee schedule provides an apples-to-apples comparison with our competitors, to provide our members a perspective on how competitive our pricing is, and to represent our view of data pricing that is both fair and reasonable,” the exchange said in the member communique. “From the outset, Memx has emphasized the importance of operational efficiency and technological scale to keep our costs low. Our hope is that with time and increased competition, all market participants will ultimately save money under a more rational and fair data pricing structure.”

Another data and exchanges expert praises Memx’s approach for establishing clear controls over the cost of its data and its purpose—for example, not trying to charge non-professional users for real-time market depth data, which they would have little use for. By creating “packages of content fit for purpose, relying less on contractual controls, the exchange can reduce ambiguity over what fees are related to which users, and potentially reduce the instances of non-compliance resulting from interpretation,” this expert adds.

The new fees will take effect on Friday, April 1, subject to filing with the SEC.