A volatile year saw 90% of firms renegotiate their data supply agreements with vendors in 2023 as price rises continued to soar for a multitude of reasons, says a new whitepaper from Substantive Research.
Despite vendors claiming that price surges are in line across peers, significant cost pressures remain for market data consumers as the increases continue to be applied to the entire market in a so-called “endless cycle”.
As a result, both the buy- and sell-side are playing a game of “catch up” with no end in sight, the whitepaper notes, as by the time a consumer’s discounts are removed over a multi-year agreement, vendors have raised the ‘standard’ price again, and by a lot, sparking another negotiation.
Substantive Research found that major vendors’ prices rose by up to 50% for the same use cases in several instances, with the rise put down to ‘changes in pricing structure’, while 65% of surveyed firms surveyed reported communications from vendors that they had previously been significantly discounted and are now compelled to pay more in order to align with their peers.
Speaking to The TRADE, Mike Carrodus, chief executive of Substantive Research, explains: “When vendors say they need to bring market data customers ‘in-line’ with what other peers are paying, they may well have some firms paying at those higher levels but that doesn’t mean there’s a consistent market price that the data customer is lagging behind […] there can be no single definition of “peers” as that calculation will differ alongside the differing pricing drivers per provider, per product and per license.”
Specifically, the removal of discounts accounted for 67% of price rises in ratings, 36% of price rises in data terminals, 41% of price rises in indexes, and 20% of price rises in data feeds, according to the whitepaper. For data feeds, the remaining 80% was put down to ‘changes in use cases’.
The Financial Conduct Authority (FCA) has previously shared its opinion that the wholesale data market is not working, with trading markets concentrated on too few firms – limiting choice and thus making switching suppliers difficult for market participants.
Read more: Competition in wholesale data market is not working, first phase of FCA investigation finds
With this in mind, the FCA launched a wholesale market data study last March, delving into the transparency and consistency, or lack thereof, of pricing reported by consumers throughout the financial industry in order to address concerns raised by both the buy- and sell-side.
The findings cover: Market data feeds, providers of indexes, credit ratings data, and terminals.
Specifically looking at the buy-side perspective, Carrodus says that this FCA review should particularly look into how to ensure pricing is more closely tied to cost rather than value, explaining: “While they wouldn’t insist necessarily on published ratecards for all products, a transparent, accessible framework for providers’ pricing policies would be welcomed […] Many would suggest a focus on the strict confidentiality clauses, which have ensured that no one can discuss their provider relationships with peers, and many clients have said these have enabled the opacity in prices to continue.
“[…] Clients and industry stakeholders have been impressed with the resources allocated by the FCA to this study – it has been comprehensive and has asked the right questions. But the market is also realistic about how much the regulator can achieve when many of these pricing dynamics are fundamentally driven by lack of alternatives.”
The FCA previously has recently conducted a series of consultations, and gathered evidence, around the topic with an announcement regarding its chosen actions expected on 1 March 2024.
The regulator previously asserted that “there are reasonable grounds for suspecting that some features of the benchmarks, credit ratings data and Market Data Vendor (MDV) services markets prevent, restrict or distort competition”. Specifically, the FCA claimed that the process of procuring data, specifically the way it is sold, is too complex.
Similarly, the European Union has also conducted a major probe into market data in recent years, concluded by the introduction of reasonable commercial bias.
Read more: Market data prices rising ‘faster than ever’ despite FCA investigation, new data finds
The idea of “playing catch up” amid continuous unclear justifications from vendors has led to market frustrations as the cycle seemingly appears to be set to continue in perpetuity – with continuing rising prices meaning that firms can never catch up.
Findings from Substantive Research last October showed that the average price increase for an unchanged customer use case at ratings agencies was 12% – not including year-on-year inflation increases within a multiyear contract.
For index providers, the average price increase for an unchanged customer use case was 13% also not including year-on-year inflation increases within a multiyear contract, while some outlier providers are repricing clients by 600%.
In addition, a March 2023 report from the research body found that some providers are charging certain buy-side firms 26 times more than others for similar index products and services.
Read more: Understanding how to utilise data is essential for improving workflows
The Substantive Research whitepaper includes insight from 40 buy-side firms and 20 sell-side firms from across Europe and North America.
Carrodus highlighted the key takeaway from the research findings: “[…] the market is hoping for significant changes to the way this market is run, anything less and consumers of market data will have to make fundamental changes to their data budgeting and procurement processes.
“A key dynamic we’ve uncovered is that by the time a consumer’s discounts are removed over a multi-year agreement, vendors have raised the ‘standard’ price again, and by a lot, sparking another negotiation. This means that firms procuring market data never catch up with what vendors say they should be paying.”