ESMA & The exchange data fees crucible

On 5 December 2019 ESMA released its report on Market Data Pricing and an European Consolidated Tape following the implementation of MiDID2 and MiFIR. It is a prime example of regulators having little understanding of the subject matter and allowing themselves to be influenced by a vociferous activist minority (IPUG) that has not heard of the ‘Law of Unintended Consequences’, then producing a work of art that is more ‘impressionist’ than ‘renaissance’. Didn’t they read EVIA’s well thought out submission?

For a detailed examination of the issues, I recommend Reg Pritchard’s excellent in-depth analysis to be found on the Tabb Forum at https://tabbforum.com/opinions/esma-and-market-data-fees-we-need-to-talk-about-value

Rather than repeat Reg Pritchard’s points, this brief aims to summarise why if ESMA’s recommendations were to be implemented it would increase the costs of trading, directly and negatively hurting the institutions supposedly saving money on data, impact liquidity, and drive up the cost of data to a fast growing segment of the financial markets, the pension funds, unit trusts (mutual funds), wealth managers, and the mass retail market which only now is gaining access to information once the sole preserve of the biggest financial institutions.
ESMA’s proposals flies in the face of the expanding democratisation of data. They would limit access to the clique of financial institutions with the largest resources, at the expense of smaller innovative financial firms, and those serving the man in the street as detailed above. The end result would increase costs in other areas, making it more expensive to participate in financial markets, not less.

The financial institutions which pay for and consume data do not do this for the sake of it, they do it for cold, hard business reasons, to make money by offering their own services which includes the cost of data hidden in the price tag. When companies like Liquidnet call for ‘Free Data’ (Quoted in Politico) do they provide their own services for free?

This means the logical next step is to cap the fees of the products offered by these institutions containing this data, so protecting the next level of consumer. In reality this is a poor argument, but to regulators the reasoning is basically sound.

Finding solutions to problems that do not really exist usually leads right down the path to Salem.

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