MIDAS_JA_Final__06192017_Redacted_092717.pdf

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

100 F STREET NE

WASHINGTON, DC 20549-2000

OFFICE OF

ACQUISITIONS

JUSTIFICATION AND APPROVAL

FOR OTHER THAN FULL AND OPEN COMPETITION

J&A Number 2 Market Information Data Analytics System (MIDAS)

Upon the basis of the following justification, I hereby approve the issuance of the contractual action discussed below using other than full and open competition, pursuant to the authority cited herein.

1. Contracting Activity:

U.S. Securities and Exchange Commission 100 F Street, NE Washington, DC 20549

2. Nature and Description of Action Being Approved:

The U.S. Securities & Exchange Commission (SEC or Commission) intends to execute a hybrid contract (Labor Hour and Firm-Fixed Price) with Tradeworx, Inc., on a sole source basis using the exception to full and open competition permitted by FAR 6.302-1 -- only one responsible source and no other supplies or services will satisfy agency requirements.

This action is necessary to mitigate risk and ensure the continuity of the SEC’s operations-critical Market Information Data Analytics System (MIDAS). After careful consideration, it has been determined that Tradeworx is the only available authorized source with the capabilities and experience to effectively provide a system which specifically includes access to historical time stamped data dating back to 2008.

The SEC has a requirement for a Market Information Data Analytics System (MIDAS). This system shall provide a low latency equities and equity options market data collection, processing, and analysis solution. This solution shall provide SEC staff with the data and analysis capabilities matching the speed, ease, and reliability available to sophisticated market participants. The solution shall include five parts:

Market Data, Data Science, Market Data Analytical Tools, Sandbox, and Program Management and Support. The Contractor should externally host the solution. To meet performance requirements, the SEC anticipates that the Contractor will utilize a variety of cloud-computing services, including the following:

Software – cloud computing services where the Contractor hosts applications it provides to customers;

Platform – cloud computing services where the Contractor hosts an environment for customers to build and execute their own scripts, store information, etc.; and Data – cloud computing where the Contractor hosts data it provides to customers.

The design must provide a mechanism for collection and consistent time stamping of trade messages at the microsecond level since 2008. The primary users of the solution include staff in the Division of Trading and Markets (TM). Other user organizations include the Division of Enforcement, Division of Investment Management, Division of Economic and Risk Analysis, and the Office of Compliance, Inspections, and Examinations.

The period of performance is for a base year and four option years. The estimated dollar value is approximately . This monetary figure was derived through research of historical acquisition prices and discussion with industry for similar services.

3. Statutory Authority Permitting Other than Full and Open Competition:

The statutory authority permitting other than full and open competition is 41 U.S.C. 3304(a)(1) and FAR 6.302-1, “Only One Responsible Source and No Other Supplies or Services Will Satisfy Agency Requirements.”

4. Demonstration that the Proposed Contractor's Unique Qualifications or Nature of the Acquisition Requires Use of the Authority Cited:

Tradeworx is uniquely qualified to provide these services to the SEC’s Office of Information Technology/Trading and Markets based upon the following:

Tradeworx is the only available contractor with the unique qualifications to effectively provide a market data analytical system that contains all U.S equity exchange direct feed and consolidated tape feed time stamped data dating as far back as 2008 through the current date with a 15-minute delay.

Tradeworx’ feed handlers applies a time stamp to all historic and future tick level messages with 1-microsecond granularity using a clock that is synchronized to National Institute of Standards and Technology (NIST) with no greater than a 50-microsecond clock drift. Please see the chart below for a listing of feeds and their start dates that Tradeworx provides in the MIDAS platform.

All direct feed and consolidated tape feed data related to equities, consolidated tape, OPRA and futures include orders, modifications and cancelations, executions as well as any status and admin messages. The vendor stores each message in a manner that allows for high-performance query retrieval required by SEC staff.

5. Efforts to Ensure that Offers are Solicited from as Many Potential Sources as Practicable:

A Request for Information (RFI) was posted to Federal Business Opportunities (FBO) on March 28, 2017 in an effort to solicit from as many potential sources as practicable. Sixteen vendors provided responses to the RFI questions and provided capabilities statement. The SEC later inquired about existing or similar services for providing time stamped historic and future direct feed and SIP feed messages by sending an email to all of the respondents on April 25, 2017. Out of the sixteen original respondents that were emailed, only five submitted a response. They were unable to provide the data.

Additionally, the SEC reviewed the internal SEC established enterprise agreements for possible consideration in meeting this contract. The SEC has 25 established agreements.

Furthermore, a copy of this Justification and Approval will be posted via the Government-Wide Point of Entry, FedBizOpps and any interested parties can submit their capability statements for consideration.

6. Determination by the Contracting Officer that the Anticipated Cost to the Government will be Fair and Reasonable:

The Contracting Officer by signature on this document hereby determines that the cost to the Government will be fair and reasonable. The proposed methods to determine pricing fair and reasonableness may include, but not limited to, the following:

a. Proposal Analysis Techniques in accordance with FAR 15.404-1(b)

b. Request other than cost and pricing data by requiring that the data submitted by the offeror include, at a minimum, appropriate data on the prices at which the same item or similar items have previously been sold.

7. Description of Market Research Conducted and Results or Statement of the Reasons Market Research was not Conducted:

A Request for Information (RFI) was posted to Federal Business Opportunities (FBO) on March 28, 2017 in an effort to solicit from as many potential sources as practicable. Sixteen vendors expressed interest;

however, upon review it was determined that the vendors did not meet the requirement of having existing services or similar services for providing future and historic direct feed and SIP feed messages. To make certain that the assessment was accurate, the government reviewed the information provided to vendors via FBO and decided to send the sixteen respondents an email to specifically inquire about existing services or similar services for providing future and historic direct feed and SIP feed messages. Out of the sixteen original respondents that were emailed, only five responded. Upon review of the five respondents by Trading and Markets and OIT, it was confirmed that the vendors did not meet the requirement of having historic market data dating to 2008 that must include the original exchange time stamp and a time stamp of when each message was collected by a centralized feed handler. These centralized feed handler time stamps must have 1-microsecond granularity utilizing a clock that is synchronized to NIST with no greater than a 50-microsecond clock drift, measured several times during the business day. The current day’s data shall be available with a delay of no greater than 15 minutes. Although vendors did express the intent that they could potentially develop these requirements, none other than Tradeworx were able to demonstrate that they were currently able to provide the required historic market data dating to 2008, with the required time stamp and granularity functionality. This is an essential element of the requirement to the SEC as it impacts the ability to analyze the market in real time. Without these established services, there would be a critical mission impact to the SEC as the Trading and Markets Division would be unable to accurately assess the markets and meet the SEC’s mission of protecting and regulating the markets. No vendors other than Tradeworx were able to currently meet this requirement as opposed to attempting to establish this process after the fact.

Additionally, SEC Enterprise Agreements were reviewed to determine if this requirement could be fulfilled through one of the SEC’s established contracts. It was determined these agreements could not support this requirement. In reviewing the Enterprise Agreements, it was found that the contracts could be categorized into the following areas: IT related, Analytics, or Administrative/Program Management. One Enterprise Agreement, Corporate Housing, was unrelated to any of these categories, as referenced in the table below. The Enterprise Agreements for IT services or support were generally for hardware and software, which are not required by MIDAS. Only one IT Enterprise Agreement, Enterprise Data Warehouse (EDW), had data and analytic services that were similar to MIDAS. However, EDW does not have the market data required by MIDAS (i.e., the historical time stamped data dating back to at least 2008) nor does it offer the analytics or normalization of the market data required by MIDAS. The only other Enterprise Agreement that offered analytics was for Financial Data Analysis software, which does not meet MIDAS requirements.

IT Service/Support Contracts Unrelated to MIDAS

Contracts that included Analytics

Contracts that include Administrative or Program

Management Services A/V Services and Hardware ACL Analytics 11

Audit/Financial Data Analysis Software

Administrative Support Services

Application Management Services Business Management Operations Dell External USB Business Management Operations

Support Services Dell Latitude Contract Legal Support DIOMDS Human Resources Professional

Support Services EDW National Transcript End-user IT peripherals Nationwide Court Reporting and

Investigative Transcription Services Enterprise Language Services Nationwide Deposition

Services MicroStrategy BI Services Program Support Services Enterprise Process Services Temporary Administrative Support

Services National Exam Support Oracle BPA Oracle Delivery Center Oracle Portfolio Management Oxygen Forensic Suite Pen-Link Pro Telecom Intelligence and Analytics RSA Archer Software Salesforce CRM and Ancillary Support ServiceNow SharePoint Support Services Subscription Services for print and e-publications Survey Data Collection and other related services TOAD for Oracle

The SEC’s NEAT BPA was also reviewed and found that it does not provide the services required by the MIDAS project. NEAT uses Python and R for computations, data analysis, and visualization.

Additionally, NEAT allows queries to external data sources to retrieve market data. Therefore, similarities exist between the requirements of MIDAS and NEAT such as the use of Python and R, and the querying of market data. However, Interactive Data Corporation, the market data provider for NEAT does not offer historical time stamped market data dating back to at least 2008. This is a distinguishing capability that the current MIDAS system provides.

8. Other Supporting Facts:

Amidst the continual efforts to support the sole source determination, the SEC noted the Department of Treasury, Bureau of the Fiscal Service, Office of Financial Research (OFR), posted an intent to sole source on May 22, 2017 on FBO. Upon review, it was noted that their rationale for this acquisition strategy was similar to the SEC’s. The Treasury requires access to high-frequency financial data, also known as tick data, which captures all financial transactions in one or more markets as the transaction occurs. Other information required includes the number of shares/contracts available to trade, and the market depth, all of which is generated as part of the process in which traders submit orders to a market exchange. Additionally, accurate time stamps so that an accurate representation of events across markets can be reconstructed are also required by the SEC. The time stamps must be synchronized and able to capture data in co-located facilities. Furthermore, the platform shall also be able to provide bulk downloads of financial and credit information on thousands of firms with a given sector. The platform shall also provide historical information which covers at least the time period between the recession of 2007 to 2015. The Treasury requires a platform that will also be able to perform the necessary longitudinal analysis which will examine financial shocks to credit chains. The SEC requires a similar solution.

Additionally, MIDAS users require each direct and consolidated feed message to be stamped from a centralized collection center that utilizes a clock that is synchronized to 50-microseconds of NIST and applies stamps with single microsecond granularity. This allows for analysis that overcomes problems with data with exchange provided data and their feeds’ time stamps.

In the past, exchange clocks were not synchronized with each other and there could be significant drift from one exchange to another. Furthermore, exchange time stamps have not been historically applied at a unified point or place within the exchange processing infrastructure. Therefore, there has been exchange introduced latency because each exchange with each other.

As an example, some exchanges apply their time stamp right after a message leaves their matching engine but before further downstream processing events happen at the exchange, such as the assembly of multiple message streams into their market data feed. Other exchanges may have applied a time stamp at the very last step before they send the data to their subscribers via their feed. Additionally, the amount of latency introduced by an exchange after it stamps a message can fluctuate significantly such as during periods of elevated market activity which are target times of investigation by SEC staff.

Also, exchanges change their technology infrastructure over time, adding to the uncertainty of exchange stamps. Introducing new clock synchronization technologies, matching engine software and hardware or network infrastructure can lead to inconsistent exchange provided time stamps.

Centralized collection and accurate time stamping of exchange messages overcome an exchange that is experiencing clock issues or latency introduced after a message is time stamped.

MIDAS users require a unified view of all order books over all exchanges from the perspective of a market participant (e.g., the capability to view the protected order book at a particular point in time). For example, if a market participant provides the SEC with protected order book data that the market participant used to determine where to route a customer order, the only way for the SEC staff to verify the order book snapshot is to have its own self collected unified order book snapshot.

To have this unified view of the market, MIDAS users require that the market data is collected at one centralized place in real time, transmitting it from the exchanges to the centralized handler where the time stamp is applied. The current MIDAS solution uses the NASDAQ data center in Carteret, NJ because of its centralized location to all exchanges. Additionally, this data center is used by several market participants, adding to its value.

9. A Listing of the Sources, if any That Expressed, in Writing an Interest in the Acquisition:

Accenture Federal Services LLC Carahsoft Technologies DH Technologies Distributed Computing System Solutions Provider Explain Data Inc.

Financial Industry Regulatory Authority (FINRA)

IBM

Invent E Solutions DBA Ayvan Partners JTEK Solutions Kx Systems LeWiz Communications Inc.

Maxeler Technologies, Inc.

Salient CRGT SONA Networks Systemic Risk Regulation

TUVA

10. A Statement of the Actions, if any, the Agency may take to Remove or Overcome any Barriers to Competition before any Subsequent Acquisition for the Supplies or Services required:

The Government will continue to search the marketplace for comparable solution. If the Government should determine that such a solution exists with all the required functionality, it will seek full and open competition for future requirements.