Lessons from the Pros


Are You Overpaying Data Fees?

Nearly every day I get the opportunity to meet students and recommend custom-tailored tax strategies as part of the Tax Consultation we provide at OTA Tax Pros.  We commonly discuss topics ranging from whether to incorporate, how to short in retirement accounts, trader tax deductions, and even how to navigate common expenses such as data fees.

For many traders, data fees are minimal and not an issue.  For others, data fees become thousands of dollars each year.  And they might be paying too much.

Securities regulation requires exchanges to provide data to non-professionals at a lower rate,Tweet: Data must be provided to non-professional traders at a lower rate. https://ctt.ec/92d8f+ so that trading with real time data does not become cost prohibitive for individuals.  However, interpretation of who is a “non-professional” is left up to each exchange to define.

Platform data you receive from your broker is actually provided under “subscriber agreements” with each exchange, which define the terms and conditions of the data.

In general, exchanges agree that a non-professional data subscriber (traders) must not be

  • A member of any exchange,
  • Registered or qualified or engaged as an investment advisor or asset manager,
  • Registered or qualified with the SEC or any other regulatory body, or
  • Acting on behalf of a brokerage, bank, or investment firm;

And data must solely be used

  • For personal or private use, and
  • Be limited to managing the subscriber’s own assets.

Under those guidelines, most traders are non-professionals and qualify for the cheaper data fee rates.  However, what if you trade through an LLC or corporation?

Many traders have found tremendous tax savings through incorporating their trading activity with either an LLC or corporation structure.

Regardless of whether they’re profitable yet, trading entities have different rules regarding timing of Mark-to-Market elections, start-up expenditures, profit-loss allocation, and more.

But when trading through a company, brokerages may look at the data as being used for a business.  Does that make a trading entity a professional in terms of the data fees they pay?

Most futures exchanges would say “no.”  The Chicago Mercantile Exchange (CME) allows an “individual, natural personal or small business entity” to qualify as non-professional subscribers, so long as all other non-professional requirements are met.

NASDAQ’s Global Subscriber Agreement states, “Non-commercial organizations solely owned by an individual and members of their immediately family (who themselves are Non-Professionals) utilizing market data solely for their own personal investing may qualify for Non-Professional rates.”

The only exchange which does not explicitly delineate upon this issue is the New York Stock Exchange (NYSE), which provides the majority of data for equities and equities options.  While their Nonprofessional Subscriber Policy does allow certain trusts, trading clubs, and day traders to self-certify as non-professionals, the NYSE has commented, “It is the Vendor’s (broker) responsibility to properly classify the status of a subscriber.”

What are the regulations regarding data fees and are you overpaying?

So what about equities day traders with an LLC?  There’s still options.

First, talk to your broker and explain your LLC is a non-commercial organization and you self-certify and that you meet the non-professional standards for data fees.

If you run up against a broker with an unbending policy, then shop around.  Many larger brokerages offer free or discounted data fees so long as you meet minimum requirements.

If you only want NYSE data to research and track trends of certain ETFs, many brokers offer free delayed data.  The data is only delayed 15 min and suffices for the purposes of watching the markets. (Note that live data is required to trade an exchange.)

Not sure what to do?  OTA Tax Pros offers consultations to help students and can discuss how data fees and tax rules apply to your unique situation. To get started call 855-682-7767 or email info@otataxpros.com.

DISCLAIMER This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.