The Financial Conduct Authority is the latest regulator to begin a consultation into issues held by exclusive exchanges over market data and the fees they charge broker-dealers and asset managers, and the issue will soon be resolved. This is a contentious issue that shows no signs of resolution.
Last week, the UK watchdog said it could “restrict competition and potentially increase costs” for investors and “impact the quality of wholesale data”. announced plans to investigate access to sale transaction data.
Sheldon Mills, FCA’s executive director of consumer and competition, added: “Access to wholesale data is critical for anyone wanting to make investment decisions. Without it, they lack the information they need to make well-informed choices.”
The importance of market data cannot be underestimated. The real-time historical, summary, and reference data provided by exchanges is critical for activities such as trading, investing, reporting, and auditing. SIX Swiss Exchange says: “Data is the fuel of financial markets.”
With the advent of algorithmic trading in the 1990s, market data grew to become a key revenue driver for exchanges, and the primary business of stock trading took a backseat. Underscoring this is that Nasdaq’s stock trading revenue accounted for 11% of its total revenue, while market data accounted for 23.7%.
As the Securities Industry and Financial Markets Association (SIFMA) explains: Data monopoly means exchanges can charge excessive fees. Exchanges charge excessive fees for market data to ensure optimal execution for their customers.
Despite its importance, power remains in the hands of only a handful of players. According to Johannes Petri of Goethe University, although there are more than 100 exchanges operating around the world, six of them are the London Stock Exchange, CME Group, ICE, Cboe Global Markets, Nasdaq and Deutsche Börse. One exchange accounts for more than 50% of the industry’s profits.
The FCA is not the first regulator to investigate this issue. In 2019, the European Securities and Markets Authority (ESMA) launched a consultation in which it found that MiFID II did not achieve its objective of reducing the price of market data, while the International Organization of Securities Commissions (IOSCO) ) highlighted the concerns of market participants. Market Data Fees in 2020 Consultation Paper.
European regulators also investigated the high data revenues of Nasdaq and Bolsas y Marcados Español (BME) in 2018, while the Securities and Exchange Commission (SEC) ordered fee hikes from the New York Stock Exchange and Nasdaq. I prevented it.
This problem is unlikely to resolve itself soon, as exchanges are unlikely to part with this revenue stream without a fight. The latest fight has centered on the EU’s attempt to introduce integrated tape into the market to increase transparency, a move that exchanges clearly oppose.
“Exchanges are now actively creating, regulating, and shaping markets around the world,” Petry concluded. “They control the very infrastructure of global finance – data, indices, financial instruments, trading platforms and clearing – essentially determining how markets work for companies, investors and nations. ”
Related articles
