Bats Chi-X Europe Goes To War On Market Data Pricing

Terry Flanagan

Bats Chi-X Europe, the region’s largest equities trading venue by market share, has announced plans to charge its customers to use its market data feeds—the first multilateral trading facility to do so—as it looks to challenge the higher fee model charged by incumbent exchanges.

Buoyed by an approximate 25% share of the pan-European equities market, the venue, owned by U.S. group Bats Global Markets, is looking to provide a competitive alternative to address industry concerns regarding the high price of market data in Europe.

The move will see Bats Chi-X Europe charge for its data, which until now had been offered for free, but it is aiming to significantly undercut prices charged by Europe’s incumbent bourses such as the London Stock Exchange, Deutsche Börse, Nasdaq OMX and NYSE Euronext.

“With our new pan-European market data pricing, which in some cases is up to 10 times less than the aggregated fees of the major primary listing exchanges, we aim to set a reference point that will focus industry debate on what constitutes ‘reasonable commercial terms’ for pan-European data, whilst creating competition to help drive down overall data fees,” said Mark Hemsley, chief executive of Bats Chi-X Europe.

With cheaper prices and newer technology, multilateral trading facilities have grown in prominence in the European exchange space since the arrival of the original Markets in Financial Instruments Directive (MiFID) in 2007, which paved the way for more competition, and incumbent venues have seen their previously monopolistic market share eroded significantly. But market data prices, estimated to bring in €1bn a year collectively for the incumbent exchanges, have been less affected by competition as exchanges are the only providers of their trading data.

Hemsley says the move, effective from October, to charge customers to use its market data feeds is “fair” and is a means of boosting additional revenue for Bats. And the chief executive believes that Bats Chi-X Europe’s drive to offer a more competitive market data fee model may aid plans to provide a consolidated tape so that fund managers, broker-dealers, banks and their clients can understand whether or not best execution requirements have been met. The cost of market data is seen as a major obstacle to the creation of a post-trade consolidated tape.

“The past five years since MiFID have shown that without a fundamental change to the level at which market data is charged by the primary listing exchanges, a European consolidated tape may not be possible with competitive forces alone,” said Hemsley. “By setting what we believe to be a reasonable price for pan-European market data, we are also providing a benchmark to drive further industry discussion for a European pre- and post-trade consolidated tape that can be made available for reasonable terms.” 

Bats plans to charge users on data usage—distribution, non-display and terminal display fees—unlike incumbent exchanges that generally charge one set fee regardless.

The revised MiFID II proposals, which are likely to become law in 2014, are advocating a commercial competitive approach to the development of a European consolidated tape, instead of a process to pick a single provider or one mandated by the European Union, but some market participants are skeptical that the plans in their current format will work.

“Everyone agrees we need the consolidated tape, but who will drive the difficult negotiations needed in order to make exchanges’ unbundled post-trade prices available at ‘reasonable prices’?” said David Morgan, marketing director, trading and client connectivity, at SunGard’s global trading business, a trading and technology firm.

With a general consensus among market participants of the need for a consolidated tape, it remains to be seen how one may evolve through just market forces—as market fragmentation has made it more difficult, and more costly, for market participants to aggregate information.

“Whilst fragmentation in itself is not a bad thing the lack of a consolidated tape has emphasized the downside of this market structure rather than the upside,” said Mark Goodmann, head of electronic services, Europe, at Societe Generale Corporate & Investment Banking, one of France’s largest banks.

“There has been no viable market response to this and whilst legislation should be the last resort it appears necessary in this instance, and in principal is widely supported by the industry.”

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