Regulators Continue Reviews Of Market Data Pricing, Little Action

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Regulators in the U.S., UK and Europe are looking at market data prices and practices after receiving complaints about costs from investment firms, traders and hedge funds.

Christopher Woolard, executive director of strategy and competition at the FCA in London asked the financial service industry for input on market data. The FCA wants to further understand how innovations in data are generated and used, the value offered to market participants and whether data are being competitively sold and priced, the agency said.

“Wholesale financial markets play a vital role in our economy, and it is important that they work well,” Woolard said. “There is rapid and wide-ranging innovation in data in wholesale markets as firms become better able to gather and analyze data. More efficient, comprehensive and timely data for wholesale market participants have the potential to generate significant benefits. But these changes may also create new risks that may require us to act. We are launching this review to better understand any risks and assess whether FCA action is needed.”

Exchange Data International (EDI), which describes itself as a challenger data provider, has asked U.S. regulators to investigate the CME Group which it said plans to charge for what has always been a no-fee service.

“The new fees for historical data are a clear misuse of power by the exchange and a radical departure from long-standing practices of all other major exchanges, including the ICE USA, Eurex, Euronext, and Nasdaq OMX Nordic exchanges,” EDI said in its letter. “Furthermore, the CME is planning to charge fees for data for which it does not own copyright, such as historical prices for commodities, including corn, crude oil, and gold, as these data points are already widely available in the public domain.” EDI also objected to CME’s requirement that data vendors provide a list of their clients which will enable it to cut out the data vendors and go directly to their clients.

Jonathan Bloch, founder and CEO of EDI, said: “Exchanges appear hell-bent on developing monopolistic practices and they have to be stopped.” He asked the Department of Justice to review the CME plans.

“Starting in 2021, the CME intends to charge redistributors like EDI $30,000 a year for each of its markets (CME, CBOT, Nymex, and Comex), i.e. a total of $120,000 per year,” added Bloch. “We see this as part of a disturbing trend, as exchanges have been introducing new types of fees nearly every year.”

The CME did not respond to a request for comment.

On its web site, EDI noted that: “Supervisory authorities in the United States and Europe have yet to introduce regulatory policies on the issue but have increasingly taken note of the situation. This was demonstrated in a 2018 public statement where SEC repealed an Exchanges’ additional fees on the grounds of insufficient “factual and legal support” (Clayton 2018). However, despite supervisory intervention, nothing beyond guidance has been published and the issue remains largely unresolved.”

In November, the European Securities and Markets Authority (ESMA) launched a consultation paper seeking input from market participants in relation to its draft guidelines on the MiFID II/MiFIR obligations on market data. And in December, The board of the International Organization of Securities Commissions (IOSCO) said it was seeking feedback on a consultation report on issues relating to access to market data in secondary equity markets.

“Market data is an essential element of fair and efficient markets. More specifically, market participants need information on quotations and trades in order to make informed and competitive trading decisions and to comply with certain regulatory requirements.   However, participants in many jurisdictions have raised concerns about the content, costs, accessibility, fairness and consolidation of market data.”

Regulators have held reviews and discussions, said Spencer Mindlin, capital markets industry analyst at Aité Group The SEC held a two-day market data summit about two years ago.

“All of Wall Street went down to testify and debate in an open forum at the SEC on issues around market data pricing, but really not much came out of it. We’ve seen more debate in the last two years about market data fees and exchanges putting out statements on transaction fees and market data fees and how it should work. We have seen a lot of discussion, but not a lot of movement.”

The SEC didn’t do much beyond rejecting a proposed fee here or there, he added.

“The feeling is that the SEC has taken a hands-off approach to bringing in prescriptive regulations over the last couple of years. There could be a change in tenor with the new administration and perhaps Biden with influence from Elizabeth Warren and the banking committees. But I think it unlikely that they will change the direction of the ship. The regulators have allowed exchanges to derive new sorts of revenue as they have seen their transaction business under enormous pressure for the last few years.”

The SEC has recently opened up the market for Securities Information Processors (SIPs) in a way that might reduce the income exchanges get from transaction data or lead to lower prices through competition. The exchanges sued the SEC to block proposed changes to market data rules.

Andy Nybo, senior analyst at Burton-Taylor, said industry users of data feeds get upset because they view the providers as monopolies. But part of the problems for users is that their bills are going up because they are buying more than just data — they are buying broader data sets and analytics. On the earnings reports of exchanges, that all gets lumped together as Information Services.

“Exchanges are diversified businesses,” added Nybo. “Nasdaq has trading, clearing, listing, they sell technology, they sell market data, they sell analytics and they sell index metrics.. They have corporate actions and investor relations tools — they have a whole broad suite of services they provide to the industry and one area that has gotten a lot of attention in recent years is market data.”

The exchanges are selling products and services built on top of market data, or entirely apart from it.

“They are also delving into things like nontraditional data sets. They are building analytics and AI tools to analyze data, they are effectively leveraging their platform, leveraging their network and client connectivity to offer even more services than frankly their clients want, but don’t want to pay for. It’s not like they are tightening the screws by raising the prices on a single set of date; they are offering a suite of analytics,” said Nybo.

He added that he was familiar with the equities market but not the specific practices of the CME, EDI said the CME is charging for data that used to be free.

The Jack Kemp Foundation undertook a study of market data pricing last year. Ike Bannon, a senior fellow, commented on the results in a Forbes column:

“We conclude that the exchanges’ data fee increases appear to have been focused on the inelastic portion of their customers’ demand curve for data. That is, most subscribers have not been able to cancel their subscriptions and find a substitute arrangement. To the extent that this is not a local effect, it suggests that exchanges have market power over their customers.”

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