Niki Beattie

Released on Tuesday, the research entitled ‘There is no Market in Market Data’ revealed that incumbent venues are supplementing dwindling equity market revenues and volumes with hikes in market data pricing, ultimately leading to what the paper calls “stifling of growth and innovation”.

If correctly correlated to true market share, some exchanges could have earned an additional £4.93 billion in surplus revenue from market data fees since 2008, MSP said, or up to 7.64 times more than competitors who are processing similar volumes and market share.

MSP’s report has found that these market data revenue increases have occurred despite there being no “specific costs for producing market data” while also noting that the costs of running a trading platform are “stable or declining”. 

“This study shows the ease with which exchanges can rely on market data income to supplement what should otherwise be a natural decline in total revenue earnt from equity markets and suggests that, as a result, market growth has become a secondary objective,” said Niki Beattie, chief executive of MSP.

“European policymakers with competitiveness and innovation agendas should rigorously challenge the current separation of trading and data revenues at all trading venues.”

Supplemented declines

The report has found that market data – which MSP argues should be a by-product of trading volumes – has grown to become a far larger revenue stream than it should be that is supplementing other business areas such as trading that are suffering from a lack of innovation and attention from exchanges.

In a cross-section of European incumbent venues, the report finds that between 2020 and 2023 – despite total equity markets transacting value reducing by 17% – Euronext only saw total equity market revenue decline by 0.5% thanks to an 8% uptick in market data revenue.

Between 2020 and 2023, Deutsche Börse saw transacted value in equity markets reduced by 29%. Total equity market revenue, however, only declined by 12% due to a 10% increase in market data revenue.

Nasdaq Nordics tells a similar story, seeing a 27% reduction in transacted value in equity markets between 2021 and 2023 but only seeing a 9% decline in total equity market revenue stemming from a 4% rise in market data revenue.

Trading turnover on LSEG’s Turquoise reduced by 61% between 2020 and 2022. However, in the same period, market data revenues increased by 16.5%.

“Addressing the harmful impact of the oligopoly at the heart of market data access would lower trading costs, encourage new market entrants, and promote innovation,” said Tanguay van de Werve, director general of EFAMA, in a comment released with Tuesday’s findings.

“EU capital markets are underperforming their global peers, a trend that has only solidified over the last few years. Tackling high market data costs should be an obvious choice for policymakers looking to reinvigorate European capital markets.”

Complex fee structures

The effect, MSP has found, is achieved via a series of “arbitrary and complex” fee structures that shroud the true cost of data to competitors and peers.

These structures are based off several factors including method of data consumption, user type, competitive status, professional versus retail users, and number of devices able to see the data.

For those competing with incumbent venues, the result is a lofty increase in costs for non-display data. According to MSP’s findings, competing trading platforms have seen costs for non-display data rise by up to 481% between 2017 and 2024. Proprietary index creators that compete with exchange owned indices also experienced cost rises between 97% and 170% across three exchanges over the same period, the report has found.

The report is now calling for legislators to address the issue by re-aligning market data costs with trading activity on each exchange as well as greater regulation to ensure that market data is treated as a by-product of trading as opposed to a separate revenue stream.

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Banks and asset managers in Europe have 

A statement from the European Fund and Asset Management Association (EFAMA) and the European Forum of Securities Associations (EFSA), in response to the October report from Market Structure Partners, reviewing the challenges and benefits in establishing a tape in Europe, said the infrastructure would democratise data access across European markets.

However, EFAMA and EFSA added that their members believe the implementation of a consolidated tape in Europe would not offer a solution to solve issues relating to market data costs.  

Market data costs have become a controversial subject among participants both in Europe and the US, as the buy- and sell-side have increasingly argued that costs for market data imposed by trading venues are too high. 

“This [market data costs] issue must be addressed head-on, including through the proper enforcement of the MiFID II and MiFIR requirements, standardisation of pricelists, policies, audit procedures, etc., regardless of the existence of a consolidated tape,” said the EFAMA and EFSA.  

“The two issues are nevertheless connected as the commercial viability of the consolidated tape provider (CTP) will be closely connected to the price at which it obtains input data from trading venues and approved publication arrangements (APAs) as well.”  

Although a key aim of MiFID II, a  review of the regulation from the European Securities and Markets Authority (ESMA) has admitted that MiFID II has not had any positive impact on the contentious issue of market data fees. ESMA has previously stated that the introduction of a real-time consolidated tape in Europe could be a solution to the problem. 

Niki Beattie, CEO of Market Structure Partners and author of the European Commission-backed research, outlined that the study had highlighted a clear need for a European consolidated tape. But warned it is unrealistic a tape will be established under the current market legislation. 

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Market Structure Partners, which conducted the report, recommended the Commission moves ahead with forming a post-trade EU tape for equity and debt markets with legislative changes to require the data to be consolidated in law.

Surveying tapes already in operation in the US and Canada, the study considered that the increased complexity of European markets means the US model is not suitable for the proposed EU tape, but similar characteristics are desirable.  

To maintain optimum data quality and standards, the EU-backed study added that Europe should allow a self-regulated entity to take responsibility for the tape, similar to the Financial Industry Regulatory Authority (FINRA) that operates in the US.

The report continued that the US experience had also demonstrated the importance of having revenue allocation models based on the value of the contribution of data in facilitating the consolidation and use of the tape.

It noted the US securities regulator’s recent move to overhaul governance of the tape and the need to ensure more pre-trade data is accessible via the tape to reduce the impact of high-speed trading.   

The development in the US earlier this year marked the culmination of intense debate among market participants, many of whom have warned that exchanges have an unfair monopoly on the US tape. They have also argued the data is grossly overpriced considering the supposed low-cost of production.

Niki Beattie, CEO of Market Structure Partners and author of the report, stated in a release that the study had demonstrated there is a clear need for a European consolidated tape and that it is unrealistic a tape will be established under the current market legislation.

“If the current impediments to consolidation are not resolved then trying to consolidate data is a waste of time and it is not surprising that no consolidated tape provider has come forward,” Beattie said.

Efforts to develop a consolidated tape in Europe have been impeded due to concerns around the high costs of developing a tape in a restrictive regulatory environment and a lack of clear commercial benefits.

MiFID II laid out requirements for voluntarily consolidated tape providers, but it did not mandate the establishment of a consolidated tape that firms would have to submit transaction data to. Under the MiFID II review, major asset management firms urged the European Commission to move forward with plans to establish a consolidated tape.

“It’s scary to hear the stories of so many market participants struggling without good data. Asset managers who manage trillions of euros of assets on behalf of investors say they have sub-optimal data with which to do their jobs, risk managers of even the largest firms speak of the difficulty of monitoring the markets without consolidated data and regulators struggle to compile data sets to undertake basic regulatory calculations and perform the required oversight,” Beattie concluded.

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