The International Council of Securities Associations (ICSA), the European Fund and Asset Management Association (EFAMA), and the Managed Funds Association (MFA) have joined forces to call for internationally recognised principles to tackle escalating market data fees and unfair licensing provisions.
Their joint report notes that trading venues such as exchanges and MTFs have a dominant position with no substitutes for their market data products which has created an unlevel and expensive playing field.
The trade groups are recommending the price of market data and connectivity be based on the production and distribution costs as opposed to the value market participants derive from market data. The mark-up should be reasonable and measured against an accepted benchmark. In addition, the report advises regulators to require trading venues to submit detailed cost and revenue breakdowns to gain a better understaning of the amount of mark-up exchanges impose.
These platforms should also standardise key market data contract definitions, terms, and interpretations as well as simplify market data licensing contracts to ease the administration burden on broker-dealers and avoid unnecessary audits.
Market data including market data pricing, licensing practices, definitions, audit procedures, and connectivity fees has long been a source of contention for market participants. There was hope that the introduction of MiFID II would rectify the situation but a survey of data prices in Europe, undertaken by the European Securities and Markets Authority late last year found the regulation did not deliver the goods. Market data was not being priced on a “reasonable commercial basis”, as the legislation had stipulated.
“As a global securities industry body, it is apparent that the rising cost of market data is a matter of significant concern in many jurisdictions” said ICSA Chairman David Lynch. “The efficiency of the capital markets in meeting the needs of its many business and investor users, as well as the broader economy, depends on the cost and quality of information that is available to them. The recommended principles recognise this and promote outcomes that are fair for all involved.”
Tanguy van de Werve, EFAMA Director General, added, “The increased cost of data is forcing many asset managers to significantly scale back data purchases. This leads to less informed markets and decreased competition. The high cost of data also negatively affects the net performance of investment funds and, by way of consequence, the return to investors. The recommended principles help remedy this situation and address those concerns.”