As high-volume consumers of a variety of wholesale market data products, our members support regulatory efforts to bring more transparency to market data pricing and fairness to commercial practices. We welcome ESMA’s efforts to strengthen this framework through the proposals set out in the consultation paper and draft RTS and highlight the following areas where some further improvements can be made:
- FIA EPTA members are supportive of the general approach taken by ESMA regarding specifying costs and margins attributable to the production and dissemination of market data. We have a strong expectation that fees for market data should decrease as a result of applying this methodology. However, we believe that ESMA should be as prescriptive as possible in setting out the accounting methodology data providers are required to apply in order to derive a cost for producing and disseminating market data. This is particularly important in relation to the apportionment of joint costs and allocation of costs to specific “cost categories” as proposed by ESMA;
- Our members recommend that additional parameters be included by reference to which “reasonable margin” is to be determined as the current approach is too vague to effectively address consumers’ valid concerns around value-based pricing, which is prohibited in the Level 1 text of the revised MiFIR. In particular, we recommend including in article 3 a stipulation that “reasonable margin” cannot be determined by reference to factors such as capacity to pay or inelasticity of demand and that ESMA establish a metric or percentage of the total production and dissemination costs deemed to be “reasonable margin” issued as Level 3 Guidance to operate as a benchmark or reference to be used by data providers, consumers and NCAs.
- We agree that the complexity of licensing structures and proliferation of additional overlapping licenses for market data result in a commercial environment where it is difficult to ascertain exact licensing categories applicable to a given consumer and also result in the same data being charged for several times under multiple licenses even though it may have the same end user. Accordingly, we are very supportive of the provision in the draft RTS which provides that only one category be applicable per client in line with the principle that a user only be charged once for data. On this basis, we recommend an alternative model for charging for non-display data to ensure end users are only charged once.
- We appreciate the thought behind the audit proposals made by ESMA, including that data providers should bear the cost of audits and that audits should be exceptional and conducted only when there is evidence or a reasonable belief founded in fact of a material breach of the market data agreement. However, we believe they should go further to rebalance the relationship between data providers and consumers so it more closely reflects the basis of any good faith commercial relationship. We make some suggestions in this regard, including on information handling standards, use of third party auditors and ensuring that data consumers can also potentially benefit from audit findings.
Finally, in order for these proposals to be effective in practice, supervisory convergence is essential particularly regarding scrutiny of data providers’ approach to implementing the fees, costs and margin provisions. Adequate supervision and enforcement of this RTS across all NCAs is also essential for it to be effective. Whilst we acknowledge and appreciate the great progress in making the RCB framework more robust, it will only fulfil its potential if NCAs are consistent and vigilant in their supervision and enforcement.
