Lack of structure around data disclosures is becoming an increasingly important issue as murkiness feeds confusion when it comes to understanding the entire picture of rising costs, affirmed experts at a Plato Partnership event on 4 March.
Lessons to be learnt
Specifically, five points were highlighted by Market Structure Partners (MSP) as key areas where both the UK’s Financial Conduct Authority and the European Securities and Markets Authority (ESMA) should intervene when it comes to exchanges’ data reporting processes.
The suggested changes to disclosures – which includes the public information on trading activity, pricing, volumes, among other things – included reference to the frequency of publishing, where information is accessed (and potential for all to be compiled), obligations for trading venues to keep the market apprised of changes, and to set out disclosures by asset class.
So far this year, the conversation around rising data costs has been tense to say the least, with a research report entitled ‘there is no market in market data’ published by MSP last month labelling the increases “inexplicable”.
Read more: Some exchanges pocketing nearly £5 billion from ‘inexplicable’ market data price rises, finds report
The findings have sparked ongoing discussion across the industry, wherein exchanges subsequently fired back at the so-called “inaccurate” and “misleading” accusations around market data costs.
“The data presented in the report contains multiple errors and does not accurately present Turquoise’s trading volumes and market data costs,” said a spokesperson for the London Stock Exchange Group (LSEG) at the time.
Addressing this during the Plato Partnership virtual event, Niki Beattie, chief executive of MSP, acquiesced that the rebuttal from LSEG around the use of Turquoise data as opposed to LSE data was valid.
“We’ve been criticised by Turquoise for not having LSE figures in there. We made a statement in the report saying that LSE did not have to make reasonable commercial basis disclosures and we used Turquoise data instead. We actually agree that statement is incorrect. The LSE does in fact make disclosures and we’re going to replace these with the LSE ones.
“[…] The main reason this happened was that we couldn’t find any disclosures beyond 2021 and thought they had stopped making them post-Brexit.”
Subsequently, MSP has recommended that both the FCA and ESMA keep a repository of all disclosures in one place going forward so they may be easily be found, in addition to ensuring that exchanges advise the watchdogs of any changes to their disclosures.
Furthermore, Beattie addressed the fact that some fixed income information was included as part of revenue figures in the original report – pointing to Nasdaq Nordics and Euronext specifically.
“A final lesson for regulators is it would be really helpful to make sure that these disclosures were clearly set out by asset class,” asserted Beattie
Read more: Exchanges hit back at ‘inaccurate’ and ‘misleading’ accusations around market data costs
Passing on the efficiency baton
Beattie also highlighted the lack of ‘competitive tension’ across the market as a result of the current state of play, specifically referring to the notion of market data revenues offsetting overall income decline.
Notably, wherein the trend of exchanges losing market share is not being addressed as venues lack the motivation to grow the total market, supplementing dwindling equity market revenues and volumes with pricing hikes.
A statement from Euronext published today, 4 March, bit back at claims that exchanges have offset declining equity trading revenues by increasing market data prices.
“The report claims that the share of market data revenues over the total revenues of Euronext has increased from 11% to 19%, when in reality this ratio remained stable over the period at 11%.”
It also addressed claims that it had underinvested in its equity markets, pointing to investments made by the exchange in recent years aimed at upgrading its equity markets, including the upgrade of Optiq, the clearing migration, and data centre move to a new ‘green’ facility.
The exchange further added that “Euronext’s parallel diversification into new asset classes and services has had no impact on its continued investments in equity markets.”
Overall, MSP indicated exchanges had generated £4.93 billion in surplus revenues in its initial report, with the increase occurring despite there being no “specific costs for producing market data” – the report also highlighted that the costs of running a trading platform was either stable or declining.
Speaking at the virtual event, Beattie asserted: “What we’re seeing is efficiencies are not being passed on to the market. We saw LSE’s costs have gone down, but it’s not clear that those have been passed on and at the same time market participants are unable to capitalise on investments in automation. We’ve seen restricted dissemination of data and obfuscation of the total market liquidity as a result of the current contracts.”
“[…] Exchanges may wish to reinvest their profits to grow other non-equity businesses rather than invest in their equity businesses. And this is resulting in higher than necessary costs for other competitors as well who may be more willing to invest in equity markets. What we’ve seen is the role of equities is diminishing exchanges.”
LSEG and NASDAQ declined to comment when approached by The TRADE.