Nothing is certain except death and taxes, according to Benjamin Franklin. But if the renowned founding father were alive today, he might add increasing market data fees to his short list.
“Most of the exchanges have continuously increased their market data license fees year after year, because the demand is fairly inelastic,” said Mark Haraburda, managing director at BarChart. “In many cases, you cannot get that data from anywhere else because they are the single source of it.”
Some consumers, i.e. brokers and trading firms, are willing to absorb the pay the increased licensing rate. But others have shelved initiatives because of the higher fees, according to Haraburda, who sees increased market data fees as a knock-on effect of last decade’s wave of exchange demutualization that turned them into for-profit companies.
“They cannot depend solely on their trading transaction revenue anymore,” he explained. “They are getting more into services that provide subscription revenue that is more predictable. This is a natural evolution that puts pressure on other exchanges to stay competitive.”
Mark Haraburda, Barchart
Most recently, global exchange operator IntercontinentalExchange announced the purchase of market-data providers International Data Corp. and Trayport for $5.2 billion and $650 million respectively.
“This transaction furthers our expansion into meeting the financial information needs of our market participants globally,” said ICE chairman and CEO Jeffrey Sprecher at the time of the IDC acquisition announcement. ”With our diverse markets across virtually all asset classes, IDC will enable us to address more growth opportunities by leveraging the distribution and reach of our complementary global platforms for trading, clearing and data on a combined basis.”
Rival exchange operators CME Group and Deutsche Boerse also have made substantial investments in diversifying their revenue streams away from transaction-based businesses. CME launched CME Ventures, a wholly owned private equity subsidiary, in early 2014. It has already made strategic investments in eight technology firms since its launch. Previously, Deutsche Boerse ventured into the infrastructure-as-a-service (IaaS) market when it rolled out its Deutsche Boerse Cloud Exchange.
“You are seeing exchanges do all sorts of different things to grow and diversify,” Haraburda added.“I think it’s a good thing. It’s natural thing and it creates a lot of opportunities for other firms to either service the exchanges or combine with them.”
Featured image by /Dollar Photo Club