On 29 February 2024, the Financial Conduct Authority (FCA) published its final report on the Wholesale Data Market Study (MS23/1.5), which was launched in March 2023 to investigate persistent user concerns about how well wholesale data markets are working.

The FCA highlights in its report the important role that wholesale data plays in wholesale financial markets. As it is used to identify investment opportunities, execute trades of financial assets, make investment decisions, evaluate firms’ financial positions and meet regulatory obligations, the FCA flags that when wholesale data markets work well, data users can make well-informed decisions on where and how to invest.

The Market Study looked at three separate, but inter-linked markets:

  • The provision of benchmarks across several asset classes, including equities, fixed income, commodities, foreign exchange and interest rates.
  • The provision of credit ratings data by credit ratings agencies (CRAs) and their affiliates.
  • The provision of 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.

Findings

Overall, the FCA did not find evidence that firms cannot access the wholesale data they need. However, across all 3 markets in scope of the study, it identified evidence of, and drivers for, market power, which mean that users may be paying higher prices for the data they buy than if competition was working more effectively. In particular, the FCA found that:

  • These markets are concentrated, withusually no more than 3 key providers in each market, most of whom have maintained a significant market share.
  • Most key providers are highly profitable, and 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, and 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, with challenger firms struggling to overcome network effects, compete with well-established brands and access input data needed for creating wholesale data products.

Next steps

As the FCA has highlighted several areas where more effective competition could be encouraged in wholesale data markets to improve outcomes, it plans to focus its next steps on two broad areas:  examining where the issues identified could be addressed through the Smarter Regulatory Framework, and working to tackle firm specific issues using other tools such as its power under the Competition Act 1998.