The cost of data continues to be a key issue for participants on both the selling and buying sides, with many participants frustrated at paying so much for datasets that are critical to their future success. I am.
Following years of lobbying from market participants, the UK Financial Conduct Authority launched a three-pronged investigation into competition and costs in data markets in January 2022.
But despite continued research into the data space, market data pricing continues to rise “faster than ever” and far outpaces inflation, according to Substantive Research. This was revealed by new data.
The company’s latest research shows average price increases of 12% for rating agencies when customer use cases remain unchanged, but this does not include year-over-year inflation increases within multi-year contracts. No. For index providers, the average price increase is 13% when customer use cases remain the same, and this does not include year-over-year inflation increases within multi-year contracts.
Some outlier providers are repricing their clients by 600%, Subtantive Research added.
Mike Karodas
“The power of this provider is creating a dynamic where asset managers and banks are on an unsustainable path. It will no longer be economically viable,” said Substantive Research Founder and CEO Mike Karodas told The TRADE.
“The background of regulatory oversight is not influencing the tendency of the most powerful providers to increase costs for the same use cases. It is the lack of standardization that people are hiding from. It’s a tough time. They (buyers and sellers) feel pretty handcuffed to these providers. There are tough choices being made across the organization right now, so pricing power is being exercised. and this is a problem.”
Read more – New research finds some buy-side firms are paying 26 times more for index data than others as FCA investigation continues
This new data follows a similar study conducted by Subtantive Research in March, which found that some providers pay 26 times more to certain buy-side firms than others for similar index products and services. It turned out that he was billed.
FCA data investigation
March’s findings follow the FCA’s conclusion of the first stage of its investigation in the same month, which found that competition in the wholesale data market was not really working. The UK watchdog acknowledged in its findings that some trading markets are concentrated in a small number of companies, limiting financial institutions’ options and making it difficult to switch suppliers.
We also found that the data sourcing process, particularly the way data is sold, is so complex that it has the effect of limiting investors’ options when procuring this critical data.
The FCA has since commenced a new wholesale data market investigation under the Enterprise Act into the subject matter and, most importantly, whether the subject matter should be submitted to the Competition and Markets Authority as a reference for a market investigation under the Act. , invited those who wish to express their opinions. March 30th. The regulator plans to announce its findings and selected actions by March 1, 2024.
Read more – Competition in wholesale data markets isn’t working, first stage of FCA investigation finds
“Consumers of both buy-side and seller-side market data are looking forward to the results of this study early next year, which could have global implications,” Substantive Research said in a statement.
This is the second major investigation into market data in recent years, after the European Union conducted a similar investigation that concluded with the introduction of a reasonable commercial bias.
solution
The FCA’s research refers to six sections including barriers to entry, network effects, vertical integration, supplier business practices, data user behavior and incentives for innovation.
For Carodus, the main areas of concern are barriers to entry and supplier business practices. Among the solutions announced last year are the concept of standardization and the use of list prices to reduce disparities in fees charged to clients.
However, Karodas said the current dynamics in the data market have become dysfunctional to the point where businesses, especially small businesses, are concerned about rising prices if providers decide to standardize across their customer bases. It is said that there is
“Customers believe that standardization could lead to higher prices. I don’t think that’s a healthy market. There’s a term for ‘list price’ in this market. It doesn’t actually exist. Our data show that, with market data, the amount of discount that occurs is often reasonably consistent. What is inconsistent is the original list price,” he said.
“Regulators claim that a transparent pricing model would help. Full compliance is not necessary. But without a list price, the market lacks any anchor. They (regulators) ) can only do so much unless the dynamic is created by them and they can unravel it. But most of the time that’s not the case, and that’s the power of the brand.”
In its current trajectory, higher market data prices are likely to further concentrate capital flows to larger players who can bear the costs, accelerating the existing consolidation taking place in most parts of the market.
