Addressing High Market Data Costs
Plato Partnership members identified that high market data costs pose a significant challenge for market participants. As a result, Plato partnered with four of Europe’s leading trade associations to commission a piece of research by Market Structure Partners (MSP) to explore the state of equity market data.
The revealed a concerning trend in European stock exchanges: despite declining trading volumes and market share, major exchanges are maintaining their revenues by dramatically increasing fees for market data. The research, which examined major players including Deutsche Börse, Euronext, LSEG, Nasdaq Nordics, and SIX Swiss Exchange Ltd, found that exchanges are offsetting natural market downturns by charging increasingly higher prices for essential market data, even though there are no specific costs associated with producing this data and the operational costs of running trading platforms remain stable or are declining.
The Research
As policy makers search for growth and competitiveness in their financial markets, this Study analyses the evolution of equity market data businesses and fee structures at Europe’s largest incumbent stock exchanges and their impact on the market.
It finds that these exchanges are increasingly reliant on market data revenues to supplement a decline in their trading revenues. This results in high costs and restrictive clauses relating to the use of data that are hindering innovation and market growth with negative consequences for investors and issuers:
Since 2017, the cost of market data has surged far beyond inflation, particularly for certain participants and activities. This rise lacks a clear rationale, as there are no separate costs for producing market data, the exchanges bear no cost for data distribution and the costs of running a trading platform are decreasing.
Despite declining trading volumes, decreasing market share and fewer customers due to on-going industry consolidation and automation, the exchanges have managed to sustain, and even increase, their market data revenues.
These data revenues, are, growing as a proportion of the exchanges’ total equity market revenue which means there is an increasing pricing disconnect between the price for market data and the trading activity that underpins it. The exchanges’ ability to rely on these revenues appears to reduce the imperative to grow trading services.
When exchanges were not subject to competition in trading, data was free or had a very modest charge. Now, trading and data have become two separate revenue streams and it can be reasonably estimated that these exchanges have collectively earned a minimum of £5.67 billion/€6.7 billion from equity market data alone since 2007. Yet other new trading venues have been able to process as much or more volume than the incumbents and become profitable without relying on the same revenues from market data.
Equity exchange services are now a minority business that contribute a fraction of the overall revenues at the incumbent exchanges. At the most extreme, it contributes to only 3% of overall turnover at LSEG and Deutsche Börse. Exchanges have diversified into other higher margin asset classes or data businesses, including equity market data.
The Study concludes that policymakers should rigorously challenge the current separation of data revenues from trading revenues and recommends that legislators should oblige all trading venues to treat data as by-product of the trading process it underpins.
The Details
Total equity market revenues consist of trading revenue and market data revenue combined. However, the market data pricing does not appear to align with the trading activity it underpins. Despite these adverse conditions, EU regulatory disclosures from Europe’s largest exchanges show that they appear able to sustain overall equity market revenues by increasing the portion that they generate from market data as trading revenues decrease. For example:
Transacted value on Euronext’s equity markets reduced by 17% between 2020 and 2023. However, the total equity market revenue only declined by 0.5%. This is because market data revenues as a proportion of overall revenue increased from 11% to 19%.
Transacted value on at Deutsche Börse’s equity markets reduced by 29% between 2020 and 2023. However, equity market revenue only declined 12%. This is because market data revenues as a proportion of overall revenue increased from 21% to 31%.
Transacted value on Nasdaq Nordics’ equity markets reduced by 26.9% between 2021 and 2023. However, the total equity market revenue only declined by 8.8%. This is because market data revenues increased from 19% to 23%.
LSEG only has to make regulatory disclosures for its EU subsidiary, Turquoise. Trading turnover on Turquoise significantly reduced between 2020 and 2022, some of which can be attributed to its sale of Borsa Italiana in 2021. Nevertheless, during the same period, market data as a percentage of overall equity revenue rose from 10.5% to 27%.
These increases in market data revenue have occurred even though there are no specific costs for producing market data and the costs of running a trading platform, such as software, hardware, energy prices and other factors are stable or declining.
Additionally, exchanges in the UK and Europe have run the same trading technology for more than a decade and there is no evidence of any significant expenditure in their accounts. Costs for disseminating data across the market are borne by third parties.
The research argues that, exchanges have managed to maintain revenues by charging higher prices to fewer participants for more limited data.b This appears to have been achieved through the introduction of arbitrary and complex fee structures that are based on multiple factors including: user type (broker/agent), competitive status, professional versus retail users, data consumption method (human use on display terminals versus machine use of non-display data), and number of devices that may be able to see the data. Restrictive clauses also limit data use to exchanges' predefined purposes, making it hard for innovators to use data without taking on indeterminate financial risk.
As a result, every firm and user has a different cost profile and, if an exchange lowers prices for one set of customers, it may offset the revenue loss by raising prices for other customers.
The pricing model has led to extraordinary price increases, particularly as exchanges appear to seek to stem losses that arise that result from their customers’ increasing automation. Most dramatically, under certain conditions, it is now 35 to 97 times more expensive in 2024 for a machine to use data compared to the cost for a human to use the same data for the same activities in 2017.
Additionally, according to the research, firms that compete with traditional stock exchanges, either as trading venues or index providers are amongst those that have seen the most dramatic price increases. Competing trading platforms have seen costs rise by up to 481% between 2017 and 2024, while proprietary index creators that compete with exchange owned indices experienced cost rises between 97% and 170% across three exchanges over the same period.
Since the introduction of MiFID I in 2007, these exchanges have collectively earned at least £5.67 billion from market data, justifying their pricing as essential for the maintenance of fair and orderly markets but other competing trading venues have managed to become profitable and process similar volumes in a fair and orderly manner without the same reliance on market data revenues. If market data costs were directly correlated to market share, the study finds that exchanges, leveraging their incumbent status, could have generated up to £4.93 billion (€5.83 billion) in surplus revenue from market data fees since 2008. Alternatively, they could be earning up to 7.64 times more than competitors for processing similar volumes and market share.
The research raises critical questions about exchanges' role in regulated markets including: whether they are truly serving the equity market community, whether they are investing in equity market development and whether regulation has kept pace with the evolving business models and interests of exchanges where equity markets are now a minority business.
Ultimately, the Study argues that market data's value must align directly with trading activity. It calls for regulation to ensure data is treated as a by-product of trading by all trading venues rather than a separate revenue stream. Failing that, legislative intervention should redefine all trading venues’ objectives to ensure they support market growth as their primary objective explicitly. Once the transparency of exchange data fees is improved, it will be easier to understand the pricing of data dissemination imposed by third party data vendors within the value chain.
Quotes about the report…
Mike Bellaro, CEO of Plato Partnership
“This study reveals a concerning trend in European equity markets. When essential market data becomes disproportionately expensive, it creates barriers to entry and stifles the very innovation that policymakers are trying to encourage. This is particularly relevant as the UK and European Union seek to enhance their market competitiveness.”
Adam Farkas, CEO of AFME
“Accessible market data is a critical component of healthy and well-functioning capital markets. Irrespective of the asset class, data empowers and allows all market participants to make informed decisions when allocating capital which in turn, supports a competitive and growing capital market. We thank Market Structure Partners for undertaking this critical research which shows that the much-needed growth in Europe may be undermined if attention is not paid to these concerning developments”
Tanguy van de Werve, Director General of EFAMA
“Competitiveness is high on the policy agenda, including boosting the competitiveness of EU capital markets. Addressing the harmful impact of the oligopoly at the heart of market data access would lower trading costs, encourage new market entrants, and promote innovation. EU capital markets are underperforming their global peers, a trend that has only solidified over the last few years. Tackling high market data costs should be an obvious choice for policymakers looking to reinvigorate European capital markets.”
Niki Beattie, CEO of MSP
“This Study shows the ease with which exchanges can rely on market data income to supplement what should otherwise be a natural decline in revenue and suggests that, as a result, market growth has become a secondary objective. European policymakers with competitiveness and innovation agendas should rigorously challenge the current separation of trading and data revenues at all trading venues.”
Thomas Richter, CEO of the German Investment Funds Association, BVI
“Asset managers are legally forced to use stock market prices, benchmarks, credit ratings, and other data from third-party providers. Because of the existing oligopoly market structures with only a few providers per segment, there is a case for competition law authorities. We call for an EU data vendor act that regulates the commercial behaviour of these entities. Because if we don't, the already considerable cost pressure in the fund industry will intensify even further – also to the disadvantage of the consumers.”
Piebe Teeboom, Secretary General of the FIA EPTA
“The MSP report evidences the ongoing increase in the cost of market data over recent years. This adds significant cost to participating in European financial markets, at a time when Europe is focussed on finding ways of boosting growth and competitiveness. In the interests of ensuring Europe remains an attractive destination for capital allocation, we encourage policy-makers and regulators to consider how the report’s findings impact these objectives.”