http://www.waterstechnology.com/home/activate_user/01b3d44864fc7545c05ae883abe76f93ATM Associacao de Investidores, a Portuguese investor industry association, has launched a petition to protest market data fees charged by stock exchanges, in an attempt to influence the European Commission’s MiFID 2 regulation for a fairer market for investors, brokers and small financial intermediaries.
The petition, which was filed on Jan. 6, calls for an end to “a story of unfairness” and “a history of immoral fees.” According to ATM Associacao de Investidores, stock exchanges operate as monopolies and should be forced by regulators to derive revenues from transaction fees rather than from selling market data feeds. In addition, exchanges are acting “immorally” by charging higher fees for faster access to data.
“Stock exchanges still dominate the highly fragmented matching price market, and hence are the gatekeepers between investors and trading in the markets. They abuse their enormous power by forcing financial intermediaries and investors to pay costs extremely high [sic] for feeds and distorting the market. Faced with these unfair practices, financial intermediaries are often intimidated into operating in a ‘climate of fear’ with little choice but to meet exchanges’ demands,” the petition says.
Paulo Pinto, chief operating officer at Portuguese broker DIF Brokerand vice president of ATM Associacao de Investidores, says the petition aims to bring the issue to the attention of the European Commission in the hope of prompting regulation around market data feeds.
According to the petition, the European Commission has committed itself, with the implementation of MiFID and MiFID 2, to better regulate financial markets, though exchanges’ practices relating to datafeeds “grossly deviate from good commercial conduct and are contrary to good faith because they are imposed by the major trading partner in the value chain of financial market transactions.”
“For quite a few years, exchanges have been charging fees that are unfair. And it’s more and more unfair each day, as less people are participating in the market. MiFID regulations have managed to define best execution, but they have never looked at price,” Pinto says.
One of the main problems with exchanges charging market data fees is that it eliminates competition and makes it harder for smaller brokers to participate in the market, which damages the markets as a whole, Pinto adds. “In the end, you will have a dozen participants controlling the exchange. Maybe it works to exchanges’ advantage now, but surely it will go against them in future as it will lead to lack of competition in the market. Eventually a broker will end up executing orders somewhere else.”
ATM Associacao de Investidores approached the exchanges over the fees last year without success, so decided to start the petition in the hope of directly influencing the European Commission and MiFID 2.
At press time, the petition has almost 800 signatures, but Pinto says the cost of exchange market data fees impact many more market participants. “It’s common sense, because it’s probably the only activity in the world where you pay for something (like the oven) in order to have the bread. The business of exchanges is not data,” he says.
A Cause of Conflict
In response to the petition, a spokesperson from Deutsche Börse says the exchange conducts its market data activities in a fair and transparent way. “We provide our data to the market with lowest latency, highest quality and in a non-discriminatory fashion,” the spokesperson adds.
Market data fees and policies that enable firms to pay to obtain a trading advantage have long been a cause of conflict between market data consumers and exchanges. At industry association FISD’s World Financial Information Conference in November, management consultancy McKinsey & Co estimated that some exchanges generate margins of up to 70 percent from market data. Thus, exchanges have a keen interest in maintaining their commercial models, even if it means “not playing ball” instead of cooperating on industry initiatives, one attendee told Inside Market Data.
Rafah Hanna, principal at consultancy DataContent, notes that market data constitutes a considerable portion of firms’ budgets, and describes the fees as “inelastic” because they cannot be negotiated. “After property and salaries, [market data] is the third-largest single line item spend within most institutions now, but unlike things such as travel and technology, cannot be negotiated on the whole. In economic terms, the price point is inelastic because supply is inelastic,” which he says effectively creates monopolies.
However, Hanna says he does not believe the petition, and its policy of regarding market data fees as “immoral,” will succeed. “Market data fees are not immoral—we are all in the business of market data, whether users, salespeople, administrators or sources. Let’s not forget that data itself has no intrinsic value to anyone unless it can be used profitably,” he says.
