Financial Conduct Authority  

FCA to review wholesale data markets amid concerns

FCA to review wholesale data markets amid concerns

The Financial Conduct Authority plans to launch two market studies this year, following concerns regarding limited competition in the wholesale data markets, which it said could increase costs for investors.

In a market study to begin this summer, the FCA plans to look into concerns that complex contracts for benchmarks and indices prevent switching to cheaper, better quality or more innovative providers. 

Benchmarks and indices are used by market participants like asset managers, banks and clearing houses to track and evaluate asset prices and investment performance.

By the end of the year, the City watchdog plans to launch a second market study to assess whether high charges for access to credit ratings data is adding costs to investors and limiting new market entrants. 

It said access to high-quality credit ratings helps investment managers assess financial risk, influencing which investments they make.

It comes after in March 2020, the FCA issued a call for input to better understand how data and analytics are being accessed and used in wholesale markets, the value offered to wholesale market participants and whether data are being competitively sold and priced. 

The call for input had two areas of focus; to better understand the use and supply of market data, and access to and changing use of data. 

The FCA said it had heard concerns that limited competition in the markets for benchmarks and indices, credit ratings and trading data may increase costs for investors and affect investment choices.

Respondents highlighted several areas where competition may not be working as effectively as it should do.

One area was trading data which is typically used by investment managers, brokers and banks to trade and make investment decisions.

The regulator said it had concerns that trading venues' ownership of data may confer market power, resulting in increasing data charges that may be increasing costs to end investors.

It was also concerned that data charges may be affecting asset managers’ investment decisions and therefore limiting competition between asset managers.

The FCA said further work was needed to understand the potential harm. 

Sheldon Mills, executive director, consumers and competition at the FCA, said: “Access to wholesale data is really important for those who want to make investment decisions. Without it, they lack the information they need to make properly informed choices. 

“Our call for input and planned market studies are intended to ensure that competition is working well, that information is available to market participants that want it, and that innovation is keeping up with market developments.”

The FCA will now begin gathering further information on competition in the market for wholesale trading data. 

Trading data include information on how many financial instruments are being traded, what people are prepared to pay for them and the price at which trades are executed.

These data are supplied by venues – like stock exchanges – where these financial instruments are bought and sold. 

Concerns have been raised that limited competition may increase costs and have an impact on the types of assets that investment managers buy and sell.