Exchanges are leveraging an “incumbent advantage” to enforce “inexplicable price rises” in market data pricing, a new report by Market Structure Partners (MSP) has stated.
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.