Introduction

On 11 January 2022, the Financial Conduct Authority (FCA) published a Feedback Statement in relation to accessing and using wholesale data to gather information. In response to a call for input in March 2020, the FCA received concerns that limited competition in the markets for benchmarks and indices, credit ratings and trading data may increase costs for investors and affect investment choices.

As set out in its 2021/22 Business Plan, the FCA wants wholesale markets that deliver a range of good value, high-quality products and services to market participants. The FCA believes that effective competition within the wholesale sector can lead to an increase in the efficiency of markets, lower prices and greater innovation. These markets are typically not directly accessed by retail consumers. But, if competition is working effectively in wholesale markets, the FCA also expects retail consumers to benefit through lower costs  and improved quality of investment products.

FCA concerns

In the Feedback Statement the FCA reports that it heard views from a range of market participants about the way competition is working for the supply of trading data, benchmarks and market data. Overall the FCA found that views were mixed, largely reflecting respondents’ position in the market. Nevertheless, the FCA did hear about market features that it thinks warrant further investigation to ensure markets for the supply of data are working in the interests of users.

Reflecting on the feedback received, the FCA reports that it has concerns that trading venues’ (including regulated markets, multilateral trading facilities (MTFs) and organised trading facilities) ownership of data may confer market power, resulting in:

• Increasing data charges that may be increasing costs to end investors.
• Data charges that may be affecting asset managers’ investment decisions and so limiting competition between asset managers.
• Data charges that may be limiting the efficiency of trading activity in a way that affects price formation.
• Current regulatory provisions for free delayed data that may not be effective.

Based on the feedback it received, the FCA feels that the market for benchmark and indices provision may not be working well because:

• Contracts may be unnecessarily complex and conditions not transparent.
• There may be barriers to switching between benchmarks.
• This is leading to an increase in prices that are not commensurate with increasing costs or improved services of quality.

The FCA also reports that it heard concerns from users of CRAs and market data vendors. These included:

• Vendors bundling core services with data services.
• Vendors imposing restrictive terms around data usage.
• High barriers to entry, making it difficult to enter the data vendor market.
• High charges upon renewal of contracts as vendors are not subject to the reasonable commercial basis regulations which bite on trading venues.
• A low level of meaningful innovation in the market.

Information gathering and further market studies

The FCA will start an information gathering and analysis exercise in Spring 2022. This will focus on the pricing of trading data, underlying costs, and the terms and conditions of the sale of trading data. The regulator also plans to launch a market study this summer where is will look at how competition is working between benchmarks. A further market study will be launched at the end of the year focussing on competition in the sale of credit rating data. The FCA will publish more details about the scope and timetable of the market studies nearer the time.