Financial Conduct Authority to tackle competition problems with the trade data market

In view of the recent findings from a review of the market on trading data which is important to a wide range of users including asset managers and investment firms (please see EventID 19931 for a detailed description of the findings), the Financial Conduct Authority (FCA) is now launching a so-called wholesale data market study. The purpose of the study is to find out „whether the markets for benchmarks, credit ratings data and market data vendor services“ are working as expected and to identify any issues that particularly users of such market data are facing.
The study will specifically look at the following – as quoted:
(1) the provision of benchmarks across several asset classes – equities, fixed income, commodities, foreign exchange and interest rates,
(2) the licensing and distribution of credit ratings data by credit ratings agencies and their affiliates, and
(3) the distribution of wholesale data by market data vendors.
The following graphic provides a brief overview of the issues that the FCA will thereby examine which is followed by a brief summary of each issue.
Graphic 1 – Issues the FCA will examine

- Theme 1 – Barriers to entry and expansion: The FCA plans to examine whether or not the markets permit the entrance of new market players (what is the structure of the current market, how do current user contracts look like to permit switching to a new entrant, are there any regulatory hurdles to enter into the market);
- Theme 2 – Network effects: The FCA seeks to find out whether there are any significant networking effects that could hinder competition (do large rating or benchmark providers offer multiple services binding their customers to their services as a whole, do they offer services to distinct, yet interconnected firms);
- Theme 3 – Vertical integration: In this context, the FCA will examine whether or not there are any negative effects from vertical integration (do rating or benchmark suppliers function within a vertical supply chain, how does such structure impact any potential bargaining power of data distributors);
- Theme 4 – Suppliers‘ commercial practices: The FCA plans to look into the commercial practices of rating / market data suppliers (how do their contracts with clients look like, are there any clauses ensuring customers are bound to the contracts in the long-term, are the contracts clear, straight-forward, and easy to understand);
- Theme 5 – Behaviour of data users: The FCA will also examine the experiences of data users with market data suppliers (how do their contracts look like, what are the needs of data users, what factors keep them from switching their market data supplier); and
- Theme 6 – Incentives for innovation: In this area, the FCA seeks to find out whether or not and – if so – what type of incentives currently exist to foster innovation in the area of market data provision.
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To conclude, the FCA notes that it would like to hear from all types of stakeholders (data providers, data users, data distributors) and that it would particularly welcome any evidence of their experience in this context (e.g. contract terms, pricing structures, etc.) Supporting documents or comments shall be submitted to wholesaledatamarketstudy@fca.org.uk.