To meet regulatory obligations, industry companies are effectively forced to pay for data from a growing number of trading venues, whether or not they evaluate the data. According to the Canadian Securities Administrators (CSA), data has become increasingly important as a core revenue source for the market, rising from 40% in 2006 to nearly 50% in 2019.
While industry companies are rightly critical of the uncontrollable rise in costs, critics argue that the problem also disadvantages individual investors.
In response to a consultation initiated by the CSA in late 2022 on market data issues, Cboe Global Markets Inc. (and its subsidiaries NEO Exchange Inc. and alternative trading system MATCHNow) has announced that its current approach will harm retail investors. He insisted on receiving it.
Given the high cost of market data, individual investors and financial advisors can only access trading data for the venue where a particular security is listed, and not the full range of trading activity for that security, Cboe said. he said.
Cboe comments: “Without an integrated, holistic view of market pricing, liquidity, and volume, the ability of retailers (advisers and investors) to make sound investment decisions will be severely compromised. ” he said. This could lead to poorly informed investment decisions and poor trade execution quality, it added.
BMO Capital Markets echoes this sentiment. “Real-time market data is as important to trading as oxygen is to life. It is essential. From individual traders to the world’s most sophisticated investors, from academics to financial planners, everyone needs timely, accurate and and access to trusted data.”
This need for data, and the pricing power of data providers, confirmed the industry’s dissatisfaction with the existing system.
“This monopoly power allows venue operators to steadily raise prices over time without losing customers,” BMO said. “(S)implicitly, the exchange is selling oxygen.”
TMX Datalinx, the data services arm of TMX Group Ltd., agreed in its filing that there is room for improvement when it comes to real-time market data, but that it would consider “robust and robust data” before changing current arrangements. Encouraged regulators to conduct a cost-benefit analysis.
TMX Datalinx argued that marketplaces “already impose significant ongoing regulatory obligations regarding fee changes” on regulated users, including the requirement that fees do not create barriers to access. The company also said market data fees for non-professional subscribers are among the lowest among its international peers, and commercial users “do not see any cost increases.”
Cboe said the availability of integrated data is also important for public companies and products. Cboe’s filing says the lack of comprehensive data could lead to an underestimation of an issuer’s true liquidity, limiting its attractiveness to investors and harming its market value.
Cboe also notes that limited market data will reduce overall market liquidity, as outages at major trading venues can leave traders without data on other market activity high and dry. suggested that this could impair resilience.
“This has a negative impact on the overall market,” Cboe said.
Other feedback to the CSA consultations is that foreign investors are typically charged even more for data from certain Canadian markets, which not only damages the Canadian market’s reputation but also threatens integration into the United States. He pointed out that it facilitates the flow of securities orders.
Regulators recognize that fair access to market data is a challenge. After the CSA held a public consultation on market data issues in 2012, the regulator developed a methodology to oversee the provision of market data.
However, these efforts have not resolved the grievances, and the responses to the latest consultation have made the issue even more complex and contentious. Regulatory measures run the risk of creating winners and losers. Reducing data costs for individual investors and industry companies will reduce the market’s primary source of revenue.
It’s not just the cost of raw data that matters. Industry companies also pointed to access fees, location fees, and other additional charges.
This is not just a Canadian concern. Last spring, the International Organization of Securities Commissions released a report on the cost and access to market data around the world. The report expressed opposing views on the need for regulatory oversight of market data and failed to identify common principles to help regulators set requirements in this area.
The CSA consultation set out a number of options, including greater transparency around fees and adopting an entirely new model for providing market data. Submissions showed that there is no easy, agreed-upon solution.
For example, the Canadian Securities Dealers Association (CSTA) agreed that the cost of data is too high to warrant regulatory intervention. But members are divided on what that intervention should look like.
CSTA’s submission suggests that the industry consider two options. One is to regulate the provision of data as a utility and require pricing to be based on the cost of production and a “reasonable” profit. Or, as the US market has done, centralized securities information to ensure that retail investors and other amateur users have access to comprehensive data, while at the same time fostering increased competition among trading venues. Processing equipment (SIP) may also be established.
“Members are divided on which option is best,” CSTA’s filing said. Supporters of utility-like regulation see this as a “more pragmatic approach,” while supporters of the SIP model believe it better addresses the lack of competition. .
Comments from the Investment Industry Association of Canada recommend the creation of a regulated, independent information processor to consolidate and distribute data using a cost recovery model.
In addition to addressing shortcomings in existing models of market data production and distribution, Cboe argued that regulators should prioritize giving individual investors and advisors access to integrated, real-time market data. . To that end, it recommended that regulators require investment firms to provide integrated data to their clients.
“Absent such a mandate, it is highly unlikely that dealers would voluntarily provide access to integrated data (to retail investors and advisors),” Cboe said.
Mandating the provision of integrated data to individual investors “is only possible if we address today’s prohibitive costs and pass-through fees,” he added.
