For most wholesale market data buyers the valuable data and analysis offered in this study is more than welcome and most likely confirms what is already known.
Recently, the FCA in UK released the results of its Wholesale Data Market Study, which focused on competition in three separate but connected markets: credit ratings data, benchmarks, and market data vendor (MDV) services. The FCA (Financial Conduct Authority) regulates the financial services industry in the UK.
Wholesale data information, as defined in this report, includes trade data, pricing and valuation data, reference data, credit ratings data, benchmarks and indices, and other products such as news, company information, research, analytics.
The study was launched in response to concerns that data buyers find switching suppliers burdensome, have few choices available to them, and continuously grapple with high levels of complexity.
Significantly, the study concluded that no evidence was found that firms cannot access the wholesale data they need and in most cases the data purchased is of “sufficient quality to meet their needs.”
However heavily noted, across all three markets, was the presence of provider market power and due to this users may be paying higher prices than “if competition was working more effectively.” The following was noted about the all three markets:
- Most key providers are highly profitable.
- Data from key providers is essential and there are limited or no effective alternatives.
- Key providers face limited competition from firms wishing to enter or expand as there are associated barriers for entry.
Key Providers
The international credit ratings market is concentrated amongst the largest 3 CRAs (credit rating agencies): Moody’s Investors Service, S&P Global Ratings, and Fitch Ratings. They “maintain over 90% of global solicited ratings and account for a similar proportion of global revenue. The regulated UK subsidiaries of the largest 3 CRAs represented 90% of the total UK market by revenue in 2022” (Annex 3).
There are several types of firms that administer benchmarks. Selected examples for each category:
- Diversified index providers – FTSE Russell, MSCI, S&P Dow Jones, Bloomberg, RBSL and Solactive
- Price reporting agencies (specialize in commodity price assessments) – S&P Global Commodity Insights, Argus, Independent Commodity Intelligence Services (ICIS), General Index and Global Commodities
- Boutique index providers (measure niche asset classes or markets, such as crypto, ESG, artificial intelligence) – CF Benchmarks, StatPro, Robo Global and Speedwell
- Self-indexers – Nomura, Blackrock, Invesco and Barclays
- Exchanges – ICE Futures Europe (IFEU)/Intercontinental Exchange (ICE), LME, CMA Group Benchmark Administration (CBA)/Chicago Mercantile Exchange (CME) and Baltic Exchange Information Services (BEISL)/Baltic Exchange
- Specialised service providers – Moorgate Benchmarks, now part of Morningstar, and Bloomberg
- Academic institutions – University of Chicago’s Center for Research in Security Prices (CRSP) (Annex 2)
Bloomberg “is and has been historically the largest MDV followed by LSEG (formerly Refinitiv). Other smaller but significant MDVs are SPGMI, ICE and FactSet, followed by a long tail of smaller specialized providers” (Annex 4).
Pricing and Bargaining Power
CRA data affiliates do not typically make their data feed prices publicly available. Respondents reveal 96% have attempted to negotiate contract renewal pricing with 76% having limited success. Reasons include rigid fee structures, limited choice of providers making switch away attempts not effective, and limited price transparency (Annex 3).
Concerning benchmark administrators, opaque licensing restricts the ability to compare and challenge prices. Different prices are charged to data users “based on how much they are willing to pay for data, rather than the cost of supplying data to them.” When terminating a contract, there are clauses for historical data restrictions and/or perpetual license fees.
MDVs’ pricing practices include bundling different products and selling them together, thus reducing transparency (some bundles can be beneficial). Many users have to hold licenses both from the data generator and the MDV through which they access data.
No Investigation Recommended
In the end, the FCA is not referring any of the three markets to the CMA (Competition Markets Authority) for investigation. They do not think this would be the most appropriate way to address the identified problems. Instead, they believe viewing any potential next steps should be done in the “holistic context of the current regulatory regime and the changes being introduced through the Smarter Regulatory Framework.” Noted is the global nature of these markets with caution needed to allow for UK domiciled data providers to effectively operate internationally. Any further action needs “to be proportionate to the harm” and intervening in markets where users have indicated their ability to access needed quality data may have unintended consequences.
Significance of the Study
This open access study provides, in incredible detail, a much needed current view of the wholesale data market along with the complex challenges associated with purchasing this kind of data. Pricing, licensing, and transparency concerns are carefully documented. Even though the focus of the study is on UK wholesale data users, many of the provider firms compete across multiple countries, making it useful for buyers in other geographies as well. In addition to the study, there are annexes that dig deeper into how competition works in each separate market with excellent financial data provided by suppliers. For most wholesale market data buyers the valuable data offered is more than welcome and most likely confirms what is already known.
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