Wholesale data plays an important role in wholesale financial markets and many firms who produce, supply and use wholesale data operate across multiple countries. The focus of the Financial Conduct Authority (FCA) has been on UK domiciled wholesale data users. Most direct users of wholesale data are firms such as asset managers and investment banks. The cost and quality of the data used in the investment process affects outcomes for retail investors. \
The FCA’s market study has looked at competition in 3 separate but inter-linked markets related to the provision of:
- benchmarks across several asset classes, including equities, fixed income, commodities, foreign exchange and interest rates.
- credit ratings data by credit ratings agencies (CRAs) and their affiliates.
- market data vendor (MDV) services. This covered the business activities of MDVs related to the redistribution of wholesale data, including trade data, index data, credit rating data, reference data, pricing and valuation data.
Overall, the FCA have not found evidence that firms cannot access the wholesale data they need. The evidence suggests that firms buy the kind of data they need, and, in most cases, the data they buy is of sufficient quality to meet their needs. For example, around 70% of benchmarks users reported no issues with quality, and 90% of credit ratings users were either positive or neutral when asked about their views on the accuracy or quality of ratings and related services provided by the top 3 CRAs.
However, across all 3 markets in scope of the study, FCA have identified evidence of, and drivers for, market power. Users may be paying higher prices for the data they buy than if competition was working more effectively.
The FCA identified that:
- These markets are concentrated. There are usually no more than 3 key providers in each market, most of whom have maintained a significant market share.
- Most key providers are highly profitable. They have maintained high profitability (with operating profit margins of at least 30% and, in some cases, more than 60% in the period 2017-2022).
- Data from key providers is essential. Users regard sources of data from most key providers as essential as there are limited or no effective alternatives. In some cases, providers have exclusivity over data, for example the unique data held by CRAs. If users need this exclusive data they can only get it from those providers.
- Key providers face limited competition from challenger firms. There are barriers to challenger firms entering or expanding in these markets. Challenger firms struggle to overcome network effects, compete with well-established brands and access input data needed for creating wholesale data products.