Buy-side firms unhappy with the cost of market data are unable to challenge the high fees because exchanges’ hold a monopoly on the data, Paul Collins, head of European equity trading at Franklin Templeton Investments says.
Speaking at the ICI Global Trading and Market Structure Conference in London, Collins told delegates he needed access to the data for day-to-day operations and to demonstrate to regulators and clients how the firm was achieving best execution.
“Unfortunately, you’re not in a position to negotiate because we get the data from one specific source, so to an extent it’s monopolised.”
Collins said competition amongst exchanges didn’t make a difference to the cost of data, because despite choosing one multilateral trading facility, he would still need data from the London Stock Exchange (LSE) for a trade, for example. “If I have data from BATS Chi-X, it’s not enough for me to say I don’t need the LSE anymore.”
The only answer to resolve the high cost of data was for regulators to step in and ask exchanges how they came up with the price, he said.
However, Mark Schaedel, managing director at Markit, who was also a speaker at the market data and consolidated tape session, said the debate about data costs was a “distraction,” and firms should be more focused on the quality of the information.
“How does Paul see the liquidity in the market without all the other noise? He cannot do that today. The information isn’t there. That’s the fundamental flaw,” he said.
Schaedel said introduction of a consolidated tape was important for transparency and market structure to evolve properly, but without a mandate on how it will be conducted, it was unlikely to yield any useful information.
“The US’ version is something that we want to avoid, and it’s filled with a lot of the garbage that we have set out to separate: the noise from the liquidity of the tape, and we don’t want to create that here.”
Schaedel was one of two executives to establish the COBA Project, an industry-led initiative to find solutions to the commercial considerations that had halted progress of previous attempts to launch a European consolidated tape. COBA was suspended in March due to regulatory uncertainty around MiFID II and lack of support.
Schaedel told delegates that even though the project’s timing was off, the concept was valid. “Until there is an actual mandate or there is a will to facilitate a tape and the commercial structure around it, there is no reason to have one.”
For Robert Hegarty, global head of business development and market structure at Thomson Reuters, the COBA project reflected the lack of demand for a consolidated tape in Europe.
Making reference to FIX, Hegarty said the industry-driven standards body was created because of the request from both buy- and sell-side. “There was demand for the standard and FIX was launched. We are seeing some of the same principles in play here, and we’ve made strides, but it will take someone to stand up and say this is how we want this done,” he said.