FCA declines to directly regulate market data prices

The UK Financial Conduct Authority (FCA) published the results from its year-long Wholesale Market Data Study, which was launched to investigate whether the markets operated by market data, benchmark, and credit ratings providers were being hindered by anti-competitive behavior. 

Across all three markets in scope of the study, the FCA found high concentration of no more than three key providers, that those key providers are highly profitable, data from key providers is essential to users, and that key providers face limited competition from challenger firms.

However, the regulator reiterated its unwillingness to make a market investigation reference to the Competition and Markets Authority (CMA), which considers whether features of a given market adversely affect competition and what should be done about them, if anything. 

The FCA stated in its report that it will use the study’s findings to potentially inform changes to already-proposed regulation—the Smarter Regulatory Framework, introduced last year by the UK Treasury after repealing retained EU law for financial services—such as determining whether they could be improved so wholesale data is provided on a transparent, fair and reasonable basis.

“However,” the report continued, “we do not plan to consider options for directly regulating prices of wholesale data.”

Pricing disparities

Earlier this year, WatersTechnology reported that a study from UK-based consultancy Substantive Research had found enormous pricing disparities, in the hundreds of percentage points, among similar end-users buying the same data, for the same use-cases, from the same providers.

In both studies, findings concluded that each market—market data vendor services, credit ratings, and benchmarks and indices—were dominated by only two or three well-established brands. In ratings, there are Moody’s Investor Service, S&P Global Ratings, and Fitch Ratings. In benchmarks and indices, there are FTSE Russell, S&P 500, and MSCI. And in market data vendor services, Bloomberg and Refinitiv maintain the lion’s share.

Does the FCA have any appreciation of how much time people put into that and preceding asks (and why)? Is there a collective noun for a sigh (of disappointment across the City)?

UK-based market data consultant

A UK-based market data consultant who works with both data vendors and users was unimpressed, though unsurprised, by the FCA’s findings released this morning.

“Does [the FCA] have any appreciation of how much time people put into that and preceding asks (and why)? Is there a collective noun for a sigh (of disappointment across the City)?” they wrote in a message to WatersTechnology.

The FCA’s press release this morning is notably headlined, “Financial regulator finds wholesale data market can be improved.” But the regulator demurred at making any improvements in the short or medium terms. 

And the primary, stated goals of the study, the FCA said earlier, were to measure the amount of harm—i.e., cost—that would be passed on to end investors, as well as determine if competition was functioning effectively. On the first point, the FCA found that there may be a “small proportionate impact on the prices charged to end investors” but this figure “is not easily quantifiable.”

On the second point, the FCA wrote that “users may be paying higher prices for the data they buy than if competition was working more effectively.”

And yet, the regulator’s response to these findings—to the demonstration that it heard users’ various concerns and found them to have merit—was, effectively, nothing, says founder and CEO of Substantive Research, Mike Carrodus, who was disappointed and slightly surprised by the 86-page report.

“If I’m a market data professional at a financial institution, I was probably a little bit skeptical. But now I am 100% certain that no one is coming to help me,” Carrodus says.

He adds that the study should have interesting implications for how other regulators around the world look at the issue of market data pricing. One solution for which some market participants, such as Substantive Research, had advocated was that data vendors be mandated to publish price lists and rate cards for their products and services in a bid to somewhat standardize contracts and reduce price disparities. 

But the FCA ultimately opted not to take such measures.

“The FCA was seen as the leader in this,” Carrodus says. “All this work and all this focus and all this anticipation from the market—and actually, they’ve done a comprehensive study—and they’ve decided there’s not much to do. So anyone in Europe whose been pushing EU regulators to understand that there’s an issue with the functioning of this market, I think, will find a much more challenging conversation after this.”