The Financial Conduct Authority (FCA) will investigate benchmarks, credit ratings and trading data, following concerns raised about the lack of competition in wholesale market data.
The first study will take place in the summer and focus on complex contracts for benchmarks and indices that prevent switching to cheaper, better quality and more innovative alternative providers.
By the end of the year, the UK regulator said it “will launch a second market study to assess whether high charges for access to credit ratings data is adding costs to investors and limiting new market entrants.”
The sector is dominated by Moody’s, Fitch and S&P, whose ratings are used by investors to assess the riskiness of a company they are thinking of investing in.
This data, which is used by asset managers and banks to find the best price and liquidity in a stock or bond, is critical in ensuring that end investors are getting the best deals across a range of stock exchanges and other trading platforms.
The move comes following a call for input issued by the regulator last year, in which respondents highlighted the low number of viable providers in the space.
The FCA move is one of many seen over the past year as the UK examines its regulation to bolster the financial service industry in the wake of Brexit.
Complaints over the cost of market data is not new but has been in the spotlight recently as fund managers and high-frequency traders, have complained over the continued increase in prices.
“Access to wholesale data is really important for those who want to make investment decisions. Without it, they lack the information they need to make properly informed choices,” said Sheldon Mills, executive director, consumers and competition, FCA.
He added, “Our call for input and planned market studies are intended to ensure that competition is working well, that information is available to market participants that want it, and that innovation is keeping up with market developments.”
The Association for Financial Markets in Europe (AFME) said it welcomed the FCA’s plans to address the rising cost of market data “which acts as a barrier to entry to financial markets and increases costs for end investors. It is vital that exchanges and data vendors selling market data do so on a reasonable commercial basis.”
The trade group added, “Unfortunately, AFME members have observed the opposite, with pricing for market data having significantly increased over recent years. This has been exacerbated by the application of complex licensing terms and conditions which unreasonably inhibit and create uncertainty around market participants’ practical uses of market data. “We look forward to working with the FCA to address this problem with a view to developing open and competitive markets which serve end investors and issuers.”
Yann Bloch, Vice President of Product Management at NeoXam, said. “This imminent review reinforces the fact that as long as market data vendors continue to charge for every single piece of information requested, then financial institutions need to be 100% confident they are not requesting data that they fail to act on.
Financial institutions have no choice but to explore how they can derive more insights to ensure they a squeezing every last drop of value from their market data. This is key not just to keeping on top of not just data direct costs, like complex billing, but also the indirect costs around data governance.”
©Markets Media Europe 2021
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