Fixed Income Market Data Costs Rise 50%

The Association for Financial Markets in Europe (AFME) has published a new report, commissioned from Expand Research LLP, which finds that the cost associated with fixed income market data has soared between 2017-2021, increasing by 50%. This has been driven by price increases of 35% on the existing cost base and new, incremental usage which accounts for an additional 15% of spend. This is compared to a 25% price increase for sell-side market data more generally. Fixed income data costs are therefore rising much faster than the average cost of overall market data.

https://twitter.com/AFME_EU/status/1489166801376325632

The report, “The Rising Cost of European Fixed Income Market Data”, identifies the sources of rising market data costs within fixed income markets and proposes solutions to encourage greater liquidity, efficiencies and growth in European markets, which play a critical role in providing funding for governments and corporates.

Adam Farkas, Chief Executive of AFME, said: “Our latest report finds that fixed income market data costs have increased far beyond those for equity markets, which are already considered to be too high. Unnecessarily high market data fees act as a barrier to entry to financial markets and ultimately lead to detrimental outcomes for end investors through less choice and higher costs.

“This report chimes with recent concerns raised by the Financial Conduct Authority in the UK in its January feedback statement on accessing and using wholesale data, and with the EU Commission MiFIR review objective of enhancing users’ understanding of how the price for market data is set across asset classes. Rising market data costs is a market-wide problem which must be tackled as a standalone issue. While a consolidated tape has been suggested as a solution, it will not fix the fundamental issue of rising market data costs. For a tape to be effective and to contribute to open and competitive markets which serve end investors, it must be built on cost-effective data.

“If market data costs go unaddressed, market participants may be forced to scale back their data purchases which could lead to other strategic decisions, such as withdrawing from certain markets.”

This report is based on data voluntarily submitted by 10 major European fixed income market makers, all of whom are AFME members, as well as publicly available sources. Expand collected European fixed income market data spend data from participant organisations for the years 2016-2021.

Key findings:

• Costs in all categories have increased, with the composition of data spend significantly different than for equities.  Buyside costs have also increased significantly.  Figure 3 of the report demonstrates that costs have increased regardless of the number of market data users and is driven by price increases and changes to charging structures. Figure 3 also demonstrates that the cost of sourcing the data is rising yearly and the trend is likely to continue, steepening the trajectory further.
• As a result, increasing market data costs are likely to have forced some consumers to scale back their data purchase to a minimum and often to economically suboptimal levels. In some cases, it could lead to strategic decisions to withdraw from specific markets.
• The report identifies a first step to achieving more reasonable fixed income data costs is to establish and apply a set of industry developed standards to fixed income market data across the industry. These should cover:
• Standardised pricing models for purchasing data from all vendors.
• Uniform formats in which the data is stored and provided to firms.
• A consistent procedure for accessing the data.

Source: AFME