A new report by Acuiti examines the challenges that market data fee schedules are placing on firms and the potential market-led solutions to avoid regulatory intervention.
The path of the commercialisation of market data by exchanges is becoming unsustainable.
A new report from Acuiti has found that costs for the average firm have increased by between 50 – 100% over the past five years, almost half of sell-side organisations now spend more than $3m per year on market data fees and the cost and complexity of market data fees is having a detrimental impact on firms’ abilities to grow.
Capital markets are surely unique in the fact that customers are required to pay to see the prices of the goods they want to buy. However, the fact that they are demonstrates that in these markets, price (and associated data on depth of market contained within market data) is a commodity in and of itself.
In this respect, surely exchanges are within their rights to charge for a commodity in line with the appreciation of its value? Most exchanges, after all, demutualised in the 1990s and 2000s and became profit seeking, listed businesses.
The increased focus on the commercialisation of market data came in the wake of the post-financial crisis slump in trading volumes. Exchanges’ revenues were shown to be too exposed to volatility and volume. In response exchanges diversified towards more stable revenue streams such as those offered by market data charges.
According to data from Optimas, exchange revenues from market data rose from $2.2bn to more than $6bn in the years following the financial crisis. A 2019 research report from Burton Taylor found that revenues at information services divisions, which include market data, had increased by a CAGR of 13.7% over the previous five years, the highest segment of revenue growth for exchanges.
But what has become big business for exchanges has become a big cost for their clients. The Acuiti report finds that a typical mid-sized proprietary trading firm faces monthly bills of between $25,000 and $50,000 per month and two thirds of bank respondents reported their monthly market data fees to be in excess of $250,000.
With over 25% of respondents reporting that market data costs had more than doubled in the last five years and 67% saying that the cost of data had limited their entry into new markets or products, the continued escalation of market data fees is clearly becoming unsustainable.
Acuiti polled or interviewed senior executives at 112 firms across the global market for the report. In addition to understanding the impact of rising market data fees, we asked what solutions they thought would create a more sustainable future.
We found a general acceptance of the fact that market data fees are a permanent feature of today’s market. However, there was significant consternation at both the rising costs and, almost as significantly, the complexity of market data fee schedules – 82% of respondents said that they found it hard to accurately forecast market data costs.
In The Acuiti Market Data Review we analyse the challenges posed by increased market data fees and also present some solutions that, based on feedback from the market, we think exchanges should take to mitigate concerns and alleviate the pressures on their clients.
Regulators across several jurisdictions are taking a keener interest in market data costs. Some are thought to be mulling extreme remedies that go beyond what Acuiti found the market is calling for. It is therefore in the exchanges’ interests as much as their clients that action is taken now to forge a more sustainable path for the future of market data.
This artcle is based on an Acuiti Market Data Review that was published on February 18.
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Will Mitting is the founder and Managing Director of Acuiti, which he established in February 2019. Building on 15 years experience in B2B publishing, he launched Acuiti to bring greater transparency to operations across the global derivatives market. Will was previously Managing Director of FOW and Global Investor Group at Euromoney International Investor plc.
The report comes with the option of two additional sections aimed at market data vendors and analysing customer attitudes to real-time market data feed providers. In addition to an analysis of buying trends and customer preferences, these sections contain detailed reviews of real-time data feeds delivered by CQG, Bloomberg, Refinitiv and ICE Data Service and shorter reviews of Vela, Quanthouse, FIS, Activ Financial and NovaSparks.