Regulators may need to step in to curb the escalating cost of market data in Europe due to the monopoly positions of national exchanges, according to senior sources from across the securities trading industry.
Stock exchanges have announced price hikes of up to 10% for their market data services, pushing up the total cost of trading for all market participants.
BATS Chi-X Europe has recently announced it plans to freeze its market data prices for 2014 and has also launched an additional OTC market data service available at no additional cost to those receiving its existing feeds.
In contrast, this year, the London Stock Exchange (LSE) has twice increased pricing across its range of market data services, leading to a total rise of between 8-10%. Other primary exchanges have also moved to hike fees for data at a time when transaction costs are falling.
Trading fees have been falling for some time, largely due to increased competition from pan-European venues. BATS Chi-X Europe and Turquoise – a multilateral trading facility owned by the LSE – have successfully taken market share from national exchanges’ in across Europe and the launch of Aquis this week is set to put further pressure on fees. However, this has seen exchanges seek to make up for this revenue shortfall with higher data costs.
According to Mark Hemsley, CEO of BATS Chi-X Europe, the dominant domestic role of primary exchanges means the market for data is not fully competitive.
“Primary venues exhibit the pricing power of a monopoly – you really need to have the primary’s data. This is frustrating for banks and brokers as it’s hard for them to do anything about it.”
Aside from higher costs for market participants, the spiralling cost of data is also a threat to other major industry issues, such as consolidated tape and dark pool monitoring.
“There is a lack of any economically viable and consistent way to monitor what is trading where and at what price and this comes back to the argument about the need for a consolidated tape,” said Mark Goodman, head of quantitative electronic services as Societe Generale. “If regulators want good price formation in the market then it's vital this issue is tackled and it must be affordable for all market participants.”
Consolidated tape demands
The creation of a consolidated tape would require data from all primary and secondary markets to be submitted centrally in order to be compiled and give an overview of the whole market. However, at current data prices this could make it prohibitively expensive.
“The high cost of data needs to be resolved if we’re to introduce a consolidated tape. Regulators might have to step in to improve competition and ensure exchanges aren’t charging too much for their data,” warned Hemsley.
The creation of a consolidated tape is set to become increasingly vital following a recent agreement at the European trialogue – consisting of the Commission, Parliament and Council of the European Union – which will set a cap of 8% on total dark trading in a specific name. Without being able to view trading activity across all venues, it will be difficult to examine whether the cap has been breached or not, meaning regulators will want the industry to make progress on the issue sooner rather than later.
“MiFID II’s proposals provide for the industry to resolve the issue of consolidated tape data within a certain period of time but if it doesn’t do that in time then ESMA will be empowered to implement the service as a utility,” Goodman explained.