The vast majority of firms renegotiating market data supply agreements in 2023 saw price rises, with “significant” cost pressures being felt on both the buy and sell side.
A white paper from Substantive Research, outlining its latest findings on wholesale market data pricing, found that several major vendors’ prices rose by up to 50% for the same use cases due to ‘changes in pricing structure’, while 65% of firms were told by vendors they were heavily discounted and were compelled to pay more to bring them in line with their peers.
‘Removal of discounts’ was a significant justification given by vendors for large market data price increases, representing 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.
This aggressive pricing is leading to ‘endless cycles’ for market data consumers as they never ‘catch up’ with vendor increases, the report states.
Speaking exclusively to BEST EXECUTION, Mike Carrodus, CEO of Substantive Research, said: “The dynamics we are highlighting in the white paper aren’t new – it’s just been a big challenge to collect enough information and create a methodology that compares ‘apples with apples’. Market data heads and procurers will attest to the fact that whilst the market may be at its most opaque and inconsistent, this has all been evolving for years. Even if providers wanted to be consistent, the diversity of their client bases and the specifics around each client’s particular requirements would make a standardised approach a big challenge. However complex pricing models and a proliferation of new licenses is one of the key factors in making this all so difficult.”
“Many market data procurers are already using best practice when it comes to understanding market supply, controlling demand and increasingly, accountability for data costs internally etc. The final pillar of that best practice approach is price discovery, which is why they’ve asked us to conduct this research. These firms know they will continue to work with incumbent providers in the coming years, and generally do not want to create overly adversarial relationships as a result – but what price discovery can do is help both sides of the table identify exactly where in an agreement they should focus their efforts to compromise,” Carrodus said.
The FCA study is expected to cover providers of indexes, credit ratings data, terminals and market data feeds.
A March 2023 survey by Substantive Research found that some consumers of market data products were paying many multiples more than peers for similar products and use cases. For example, for certain index products, some institutions are paying over 26 times (2632%) more than peers.
A recent study by Substantive Research showed that vendors were raising prices aggressively on renewal, 12%-13% on top of inflation during the latest renegotiation cycles.
In indexes, changing use cases represented just 11% of the justification for price increases from vendors, with 33% of justifications citing the addition of new licenses to existing contracts and 10% of increases put down to ‘new pricing models’.
The majority of price increases in data feeds (80%) were due to changes in use case, with the remaining 20% justified by ‘removal of discounts’ (as mentioned above).
ESG data pricing, including ESG ratings, is rising by an average of 33% for renewals and 35% for year-on-year increases, albeit from a much lower base when compared to other market data products. This is due to the fact that many consumers of ESG data are still in trial phases with different providers and are transitioning from heavily discounted trial rates to longer-term pricing structures.
The makeup of the firms surveyed: Buyside – 40 firms, Long only/HF 70%/30%, UK & EU/North America 65%/35%; Total assets under management represented: $17 trillion. On the sell side – 20 firms, UK & EU/North America 50%/50%; total assets represented: $20 trillion.
© Markets Media Europe 2023
