Regulatory focus on cost and access to market data

Market data (information on prices, bids, quotes, volumes of traded financial instruments and benchmarks and indices) is becoming increasingly important to financial market participants in informing trading and investment strategies and meeting regulatory and disclosure obligations. Many regulators are concerned about the cost, access and reliability of this data and are proposing amendments to existing regulation, considering new regulation and investigating competition issues. These changes could have impacts on the business models of both the data providers and consumers. 

The FCA has had reservations around the cost of and access to market data since early 2020 when it launched a Call for Input (PDF 783 KB) on the subject.  Feedback and views on whether competition is working for the supply of wholesale data are mixed, largely reflecting respondents' positions in the market. However, the FCA highlights its concern, in its January 2022 Feedback Statement (PDF 538 KB), that competition issues in these markets may be leading to high pricing. This cost is either passed on to the end investor or limits access to data leading to less informed investment decisions by firms and consumers. 

Across the trading data, benchmarks and credit rating markets, the issues highlighted by the FCA so far include: 

• Unnecessarily complex contracts that can weaken users' ability to compare the quality, charges, or innovation offered by alternative services, and may include barriers to switching 
• Bundling of services also making it difficult to compare charges and switch to alternative providers 
• The structure of the market may confer market power that is enabling increasing data charges 
• Imposition of restrictive terms around data usage resulting in higher costs for users 
• Current regulatory provisions for free delayed data that may not be effective 

The FCA has set out a programme of work to investigate competition concerns, in particular: 

• Trading data: in spring 2022, to gather and analyse information on the pricing of trading data, underlying costs, and the terms and conditions (T&Cs) of the sale of trading data. The FCA aims to understand the extent to which there are high data costs and complex licensing terms and T&Cs that are creating harm to users, helping it to decide whether further guidance or policy action is needed. Findings will be published later in 2022 
• Benchmarks: in summer 2022, to undertake a market study on how benchmarks are priced, contractual terms and barriers to switching with the aim of reviewing competition between benchmarks 
• Credit Rating Agencies: by the end of 2022, to start a market study to review competition in the sale of credit rating data. This will cover issues such as pricing and contractual relationships, barriers to entry and the scope for, and level of, innovation 

The FCA has already commissioned research to provide it with additional information on the nature and scale of alternative data and advanced analytics usage and the risk and opportunities these bring to emerging business models. 

FCA market studies are in-depth, evidence-driven investigations, typically taking 12-18 months to complete. Firms are likely to be asked to provide detailed submissions on the functioning of the markets in question and respond to information and data requests containing confidential information about their activities.  

If the FCA finds problems in a market, it could introduce regulations or other policy interventions in the future, and in the extreme, could apply more restrictive forms of price regulation. 

A consolidated tape collects post trade reports on prices and volumes of financial instruments from trading venues and market infrastructure called approved publication arrangements (APAs) to consolidate them in a continuous live electronic data stream (or ticker tape). This means firms and consumers do not have to go to each data source to access and pay for market data to compare prices and identify investment opportunities. 

MiFID II / MiFIR set up the regulatory framework for consolidated tape in the EU and this framework was also on shored in the UK post-Brexit. However, a consolidated tape has not emerged in either jurisdiction. The principal reasons for this, numerous reviews have found, are that:

• The current structure of the market and legislative framework means that there are no strong commerical incentives for a consolidated tape provider
• Data isn't consistent in format and/or quality and therefore hard to consolidate
• There is no effective framework to enforce data standards

In the UK Wholesale Markets Review paper, published in July 2021, HM Treasury emphasised that the UK Government is keen to improve the quality and usability of market data to enhance the efficiency, effectiveness and attractiveness of UK markets, and is committed to help progress the emergence of a consolidated tape.  It particularly sees a need for a consolidated tape of fixed income data, as fixed income trading is less concentrated than equity trading, and a greater proportion is executed over the counter rather than on venues. This makes data on pricing and liquidity even harder to access.  

HM Treasury proposals to amend UK MiFID include: 

• Mandatory submission of data by trading venues and APAs to a consolidated tape — acknowledging that the Government would need to consider whether any fees or charges would be appropriate as part of this change 
• Removing the current requirement for consolidated tape providers to provide their data streams for free after 15 minutes 
• Requiring any private sector tape to have a balanced governance structure that represents providers and consumers, and to operate in a transparent and accountable way 

The UK Government's preference is for a private sector-operated tape but it acknowledges, and will consider, that some industry participants would like the public sector to play a more active role in the creation and ongoing governance of a consolidated tape. 

The key aim of the EU Capital Markets Union (CMU) action plan is to develop integrated capital markets with growing retail participation — the development of a consolidated tape is one of the listed actions.   

As part of its November 2021 package of measures to promote CMU, the European Commission also proposed a number of amendments to the MiFID II / MiFIR framework to encourage the emergence of a consolidated tape in the EU.  The proposals include: 

• Mandatory contributions of harmonised market data by trading venues to the consolidated tape provider 
• A new definition of core market data to assist with harmonisation of data 
• Empowering ESMA to specify the content, format, and terminology of the providing data on a reasonable commercial basis (RCB) concept, which has been interpreted very differently by market participants 

From data users' and providers' points of view — many of whom operate in both jurisdictions — it would make sense to have a common specification across the UK and the EU, although this is politically unlikely. But, given the probable impact on business models, it will be key for data users and providers to keep informed of developments in both jurisdictions as proposals are finalised over the next year.  

The provision of ESG data and ratings is currently unregulated but, given the growing importance of this data in financial markets, policy makers and regulators are beginning to consider regulation — for more see our 'Sustainable Finance and Capital Markets' article.