Exchanges Defend European Data Fees 

Terry Flanagan

Exchanges have defended their market data fees in Europe to regulators despite complaints from fund managers that the charges are too high compared to the US.

In response to the consultation on the revised Markets in Financial Instruments Directive, which covers trading in the European Union, fund managers said market data fees in the region are too high in comparison to the US. Exchanges have defended their fees in their replies to the European Securities and Markets Authority. Esma published responses to the MiFID II proposals from firms that chose to make them public.

Nasdaq OMX wrote in its response that there is no evidence of market failure and no need to impose control of charges.

“The differences between market data fees in the EU and the US are based on different economies of scale, a larger market in the US and different regulation which requires mandatory consumption of consolidated data by any market participant within the US,” added Nasdaq OMX. “Furthermore, as regards consolidation there are 13 venues in the US and approximately 66 in the EU.”

The exchange cited a report from consultancy Oxera that the data fees add 2% to the overall cost of trading and holding an investment over a year, or less than 0,001% of funds under management. Oxera said that in the EU between 65% and 80% of the data charges are paid to vendors, 10% to 16 % to the IT infrastructure delivering the data and the remainder to exchanges.

Nasdaq OMX said: “As exchange fees on data represent only a small part of the overall cost of data (approximately 8%-15%), regulating trading venues data fees in the EU would neither lead to changes in trading behaviour nor to welfare gains within the EU, but would carry the risk of regulatory errors and inappropriately and unnecessarily increasing costs for trading venues.”

In its response, Euronext wrote that neither the European Commission nor ESMA have provided any evidence that market data costs in Europe are too high.

“Most European exchanges, including Euronext, and other alternative venues already allow use of data free of charge where the data is taken directly and used for trading purposes,” added Euronext. “It is difficult to justify any kind of reasonable commercial basis restrictions being imposed where data is already free.”

The pan-European exchange supported more transparency from vendors so end users understand the underlying cost of data from an exchange.

“Users need to compare the cost of data via an exchange versus what they end up paying for it via a data vendor,” added Euronext.

Deutsche Börse also cited the Oxera report in its response which said that competition in trade execution and market data is working, as shown by the entry of Bats Chi-X.

“Within a few years, Bats Chi-X was able to become one of the largest exchanges in overall European equities trading and established a well-functioning market data business,” added the German exchange.

Deutsche Börse argued that for derivatives, data licensing fees are often lower in the EU than the US.

“While Eurex charges €37 per month for professional use of level 1 real-time derivatives market data and €50 per month for level 2 data, CME charges $85 separately for data from each of its four trading venues (CME, CBOT, Nymex, Comex),” said Deutsche Börse.

The German exchange wrote that for large banks, less than 0.2% of their operating expenses were spent on global consumption of exchange market data and for fund management fees were less than 0.5%. It supported the publication of current data licensing fees, price changes, and the most recent historic prices to give users more transparency.

Price regulation of market data would also weaken European exchanges at a time of industry consolidation added Deutsche Börse.

“This consolidation is often led by US-based exchange groups (e.g., takeover of NYSE Euronext by ICE), which already own significant parts of the global financial infrastructure,” added the German exchange. “Not only could this impact the important financing function that stock exchanges have for the real economy, but it may also influence the role regulated markets have played in ensuring financial stability and transparency.”

Bats Chi-X wrote that to make market data pricing fully transparent, venues should be required to publish price lists, clear supporting policies and guidance regarding the data uses and related charges. Its response said: “Where possible such policies should be based on a standard framework developed by Esma and venues should not be able to implement policies that discriminate against competitors.”

The London Stock Exchange said it did not accept the assertion that market data charges are too high in Europe. In 2010 the London exchange disaggregated its pre- and post-trade data package, providing market data to professional users at under £25 per month for all LSE and Borsa Italiana listed and quoted instruments.

“Regulatory requirements will only potentially be effective if applied on a uniform basis, and it is clear to the London Stock Exchange Group that they are not – the Level I MiFID and MiFIR create an unfair and uncompetitive environment in this sensitive area, because the commercial companies that manage and distribute the greatest proportion of market data derived from these entities are the data vendors, who are not subject to the reasonable cost basis requirement,” added the UK exchange.

Bats Chi-X agreed with the buy side that market data costs need to be limited over the long term.

“We believe that [transparency] in itself would not be sufficient to ensure that data pricing would satisfy the “reasonable commercial basis” principle,” added Bats Chi-X. “Elements of market data –such as auctions – are not substitutable and accordingly transparency will not address the issue.  The issue is compounded as long venues are able to bundle those non-substitutable data items with substitutable.”


Featured image via Dollar Stock Photo

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