Amid the unprecedented depression in the economy and stock markets triggered by covid-19, the FCA's launch of a call for information into the price of market data, has an air of "other than that, how was the play, Mrs. Lincoln".
While market participants will presently be far more concerned with the value and liquidity of their assets, not the cost of obtaining that data - this investigation has been a while coming, and will apply just as much to the post-covid-19 era as before it.
There are a handful of aspects to the wider context of this call for information into the pricing and value of market data to bear in mind:
- the large increase in value and cost of market data over the last decade - the fees for data have increased, permitted uses have decreased, increasing controls are applied to derived data, and more and more data is charged on a 'basis points' model relating to the value of products issued in relation to them - some licencees consider this unfair;
- the FCA is not alone here, the SEC started to look into this last October, and so we may see a set of new measures for different jurisdictions;
- there can, in instances, be de facto monopolies in respect of certain data assets, where there really are no, or very limited, alternatives - in particular where particular data quality or types are needed for regulatory purposes, or relate to specific trading venues;
- many trading venue users are themselves creating a (sometimes significant) portion of the data used to create the data that is then licensed back to them - they 'give' this data freely as part of their trading, but are then encumbered in respect of their use of that data once aggregated across the market - there is tension between the competing types of business relationships going on, and also between profit centers (trading revenue) vs cost centers (market data / procurement costs) at play; and
- in concept, Brexit provides some liberty to the Treasury and FCA in respect of the approach it can take here, and this call for information fits into a set of others the FCA has launched (e.g. MAR review, consolidated tape, and benchmark data licence terms), likely with an eye to its increased options after the transition period.
Amid the other societal events going on, we may of course see an extension or postponement to this CFI, as most businesses have more acute concerns at present. It does represent however the potential start of more FCA involvement in an important area, which will form part of the landscape in the medium run.
Market data is used to trade, make investment decisions, to evaluate positions and to meet regulatory obligations. Trading venues and market data vendors also use them to provide other services, such as consolidated data feeds. The FCA wants to know whether users have concerns with the way trading data, benchmarks and vendor services are priced and sold.