By Sinead Cruise and Huw Jones
LONDON (Reuters) – Some trading and investment firms are calling for competition regulators to scrutinize London Stock Exchange’s
Asset managers have been pressing regulators in the European Union and the United States to help cut the cost of the financial market data which they buy from exchanges and rely on to make investment and trading decisions.
While few of the investors Reuters spoke to expect market data pricing to prove a dealbreaker, they said it should be scrutinized and regulators could push LSE to provide undertakings about pricing and accessibility of some products.
The European Commission, which declined to comment, is expected to undertake a full review if the LSE’s proposed transaction goes ahead, with data a likely focus, sources close to the proposed deal have told Reuters.
“There is cause for some concern for investors as access to LSE’s data could become more costly and less accessible outside of the confines of Refinitiv’s products,” Jordan Hauer, chief executive at Amass Insights, a U.S. based platform that matches data providers with investors, said.
LSE had no comment on anti-trust issues, while Refinitiv’s two largest shareholders, private equity group Blackstone
While LSE-Refinitiv would form a bigger non-exchange data player, it would still lag market leader Bloomberg LP, Douglas Taylor, managing director of consultants Burton-Taylor, said.
LSE data is mainly proprietary index-related or transactions like stock trades, while that sold by Refinitiv is based on sources like financial institutions and databases, he added.
Joe Wald, chief executive of independent agency broker dealer Clearpool, said market data costs were already “excessively high” and in his experience were growing at an “abnormal rate” compared to other market products.
“A key point will be, how transparent [LSE-Refinitiv] are in the pricing of the data and ensuring that access to the data is fair and equitable in order to not disadvantage one market participant over the other,” Wald said.
Market data charges have become more complex and fund industry representatives say prices have risen and become more opaque.
“In the quest for greater market data revenue, exchanges have unbundled products and charged higher fees for the ‘new’ products,” five organizations representing investors in Britain, Germany and the United States said in a letter to EU regulators last December, without giving specific figures.
“The rising cost of market data is of concern to the Investment Association and its members, as investment managers are required to buy this data in order to trade and by regulation,” Galina Dimitrova, Director for Capital Markets at the British trade body told Reuters.
But industry body the Federation of European Securities Exchanges (FESE) in March said its members had combined market data revenues of 245 million euros in 2018, which had risen by only 1% annually in recent years in real terms.
Although some data providers and consumers say the recent arrival of new entrants is putting downward pressure on costs, last year the share of exchanges’ revenues from market data was relatively stable at around 30%, the FESE report showed.
‘OPENNESS’
Three market participants said combining Refinitiv and LSE could actually lead to improved packages for customers, while sources close to the planned LSE deal said the London exchange has a track record of rewarding customers, such as through profit-sharing in clearing.
“A philosophy of openness is a core value of both companies and we don’t anticipate any of these fears on data restriction to be founded in the actual strategy,” one source familiar with the deal said.
“(It) would run counter to everything these firms stand for.”
David Lester, who was LSE’s Chief Strategy Officer until 2017 predicted “market noise” around data charges, potential conflict of interest on pricing and market structure evolution but saw no insurmountable antitrust issues.
The U.S. Securities and Exchange Commission has also been looking more closely at exchange data feeds and pricing, and industry insiders expect this tie-up to attract its attention, although U.S.-based antitrust specialist see few hurdles.
The Justice Department declined to comment.
Several platforms trade the same shares in the EU and under the bloc’s securities rules, investment firms must show clients they obtained the best prices.
The European Commission financial services arm wants data feeds that are cheap enough for a “consolidated” feed to become available at a reasonable price to make markets more competitive and to prevent a slow-death of smaller fund firms.
These firms say data price inflation is putting their businesses at risk, although the FESE study said that exchanges were not gouging customers with data feed prices.
(Additional reporting by Simon Jessop in London, and Michelle Price and Diane Bartz in Washington, editing by Rachel Armstrong and Alexander Smith)
