Substantive Research released a white paper on the state of market data pricing ahead of the UK Financial Conduct Authority’s (FCA’s) Wholesale Data Markets Study, expected to be released in March. Some key points include:
- Aggressive pricing leads to ‘endless cycles’ for market data consumers as they never ‘catch up’ with vendor increases
- Major vendors hike prices by up to 50% for the same use cases due to ‘changes in pricing structure’
- At the same time, 65% of surveyed firms are being told they are on deep discounts and are being compelled to pay more to be in line with peers.
- ‘Removal of discounts’ is cited as a significant justification for price increases, representing 67% of price rises in ratings; 36% of price rises in data terminals; 41% of price rises in indexes; 20% of price rises in data feeds.
- ESG data pricing, including ESG ratings, is rising by an average of 33% for renewals and 35% for year-on-year increases, albeit from a much lower base when compared to other market data products. This is due to the fact that many consumers of ESG data are still in trial phases with different providers and are transitioning from heavily discounted trial rates to longer-term pricing structures.
To respond to concerns from both the buy side and sell side, in March 2023, the FCA launched a study into the wholesale market data market, using its powers under the Enterprise Act (governing consumer protection and competition laws), to look into the opacity and inconsistency of pricing reported by consumers throughout the industry.
The FCA believes that ‘there are reasonable grounds for suspecting that some features of the benchmarks, credit ratings data and Market Data Vendor (MDV) services markets prevent, restrict or distort competition’. Having run a series of consultations and gathered evidence for over a year, the FCA is expected to announce its findings by 1 March 2024, covering providers of indexes, credit ratings data, terminals and market data feeds.
A March 2023 survey by Substantive Research found that some consumers of market data products were paying many multiples more than peers for similar products and use cases. For example, for certain index products, some institutions are paying over 26 times (2632%) more than peers. A more recent study by Substantive Research showed that vendors were raising prices aggressively on renewal, 12%-13% on top of inflation during the latest renegotiation cycles.
Mike Carrodus, CEO of Substantive Research, said in a statement: “Our latest study highlights once again the importance of the FCA’s review into pricing practices for wholesale market data. Both the buy and sell sides will be waiting with bated breath for 1 March, to see what conclusions the FCA has reached. As the FCA announced it was using its powers under the Enterprise Act, the market is hoping for significant changes to the way this market is run, anything less and consumers of market data will have to make fundamental changes to their data budgeting and procurement processes.
“A key dynamic we’ve uncovered is that by the time a consumer’s discounts are removed over a multi-year agreement, vendors have raised the ‘standard’ price again, and by a lot, sparking another negotiation. This means that firms procuring market data never catch up with what vendors say they should be paying. Vendors are justifying price increases by saying it is bringing firms in line with what peers are paying, but these increases are constantly being applied to the entire market.”