The cost of data needed to trade bonds in Europe has soared by 50 per cent over five years, according to new data that highlight regulators’ concerns about competition and pricing in the market.
Costs for fixed income data rose by a half between 2017 and 2021, twice as much as overall market data price rises, a study by Expand Research on behalf of industry group Association for Financial Markets in Europe (AFME) found. The increase was largely because of sellers increasing their prices, rather than demands for new kinds of data, the report said.
The report comes as financial regulators review the inner workings of the system for supplying the information that banks and their customers rely on for trading every day. Financial watchdogs are closely scrutinising the charges levied on customers, and AFME plans to submit its findings to authorities.
The UK’s Financial Conduct Authority has said it has concerns over competition, pricing and availability of information like benchmarks, indices and credit ratings, as well as stock and bond prices that are carried from stock exchanges, trading venues and data vendors.
In Brussels, the European Commission is working on plans to make it cheaper for banks and fund managers to find prices of stocks and bonds throughout the single market, warning that a comprehensive picture is unaffordable to many investors.
Some regulatory mandates require investors to have the most up-to-date and accurate prices, giving users little choice in paying for the information.
Data suppliers have argued that their pricing models have become more tailored to customers’ consumption, while customers also want higher-quality data that require investment.
Interdealer brokers — a type of intermediary that sits between financial groups — levied the biggest price rises, up an average 183 per cent, followed by alternative trading venues, which raised prices by 46 per cent to 107 per cent, Expand found.
The survey by Expand, part of the Boston Consulting Group, found that some of the increase was because of Brexit as Britain’s departure from the EU created duplicated costs.
However, the biggest price rises were for data accessed using terminals, the distinctive trading screens that carry news and real-time prices. As most bond deals are negotiated privately, fixed income trading relies more heavily on evaluated pricing, reference data and research for information, the report pointed out.
“Our latest report finds that fixed income market data costs have increased far beyond those for equity markets, which are already considered to be too high,” said Adam Farkas, chief executive of AFME. “Rising market data costs is a marketwide problem which must be tackled as a standalone issue.”
The EU wants to create central databases that record trading information on stock and bond markets, known as a consolidated tape. But Farkas warned that it would not fix the problem of rising prices. “For a tape to be effective . . . it must be built on cost-effective data,” he said.
European and UK standards require data distributors to provide information “on a reasonable commercial basis”. Last year, Esma, the pan-European regulator, urged authorities to tweak the laws that allowed trading venues to charge for data proportionate to the value that the data represents to users.
AFME argued that pricing should be related to the cost of producing and distributing information. Expand’s research was based on data supplied by ten European fixed income market makers, and publicly available sources.