Latest Substantive Research analysis reveals opacity in pricing and price rises far above inflation in market data despite impending FCA Review
- Market Data renewal charges for ratings agencies and index providers are increasing significantly by 12%-13%; outliers remain, as a small number of providers are re-pricing clients by up to 600%*.
- Substantive Research’s previous study found that some consumers of index data were being charged more than 26 times more than others, by the same providers, for similar use cases. Today’s study shows that these aggressive percentage price increases are applied even to those paying much higher multiples, meaning their price inflation carries a much higher cost.
- This is set against the FCA’s belief that ‘there are reasonable grounds for suspecting that some features of the benchmarks, credit ratings data and Market Data Vendor services markets prevent, restrict or distort competition’.
* (not including year-on-year inflation increases within a multi year contract).
The latest study shows that prices are going up faster than ever, inconsistency of charges for identical products and use cases has increased, and agreements remain opaque – despite the Financial Conduct Authority’s (FCA’s) review of market data pricing practices.
In August 2023 the FCA released its update on the highly anticipated Wholesale Market Data Study, stating that it will publish its findings in March 2024, focusing on “concerns that competition may not be working well”. The FCA also stated that it would be assessing the reality and risks of “bundling of core services with other data services, making it difficult for users to switch; restrictive terms around data usage; high barriers to market entry; high charges for users when renewing their contracts; and, a low level of meaningful innovation in the market”.
Whilst proposing not to refer these markets to the Competition and Markets Authority (CMA) in the recent update, the FCA stated: “…we believe there are reasonable grounds for suspecting that some features of the benchmarks, credit ratings data and Market Data Vendor (MDV) services markets prevent, restrict or distort competition,” and outlined why it felt best placed to address competition concerns directly within the FCA.
Consumers of market data, on both the buy and the sell side, are eagerly awaiting the results of this study which could have global ramifications, early next year.
Latest Substantive Research Findings
Against this backdrop of increasing regulatory scrutiny, Substantive Research’s latest analysis of 2023 market data pricing shows that prices are going up faster than ever, inconsistency of charges for identical products and use cases has increased, and agreements remain opaque.
The analysis shows that for anyone renewing market data contract agreements in 2023, the repricing has been comprehensive and aggressive:
- For ratings agencies, the average price increase for an unchanged customer use case is 12% – not including year-on-year inflation increases within a multi-year contract.
- For index providers, the average price increase for an unchanged customer use case is 13% – not including year-on-year inflation increases within a multi year contract. A number of outlier providers are repricing clients by up to 600%.
- Amongst index providers, Substantive Research had previously identified that for specific products, some consumers are paying more than 26 times the amount that others are paying for very similar requirements. The latest data shows that, even if an index data consumer is paying such large multiples compared to others, these percentage increases still apply and obviously represent much greater monetary increases for those at the top end of the pricing range.
- For multi-year agreements signed in 2022, the average annual inflation increase is 5% for each year covered in the agreement, but for consumers signing multi-year agreements starting in 2023, that rate has gone up to 8%.
Mike Carrodus, CEO of Substantive Research, said: “Data consumers looking to understand pricing models and finding ways to efficiently manage market data budgets are presented with the additional challenge that market data providers and vendors are also introducing material changes into their current pricing structures. These include increased bundling of products, when consumers may only wish to buy and pay for a specific product inside that bundle, and changes in primary pricing mechanisms, making it even more difficult for consumers to compare costs against previous agreements.”
Carrodus added: “The FCA study specifically outlines worries that non-transparent pricing is making it harder for users to compare the quality, charges, contract terms and innovation of alternative providers. While it is a challenge for data providers and vendors to apply standardised pricing models for such a varied and constantly evolving client base, greater transparency is something both consumers and regulators will understandably be seeking to achieve in 2024.”
Universe of survey data:
40 asset management firms, 60%/40% Headquartered Europe/North America, Total AUM represented $12tr+, 70%/30% Long-only/Hedge Fund.
In Market Data, Transparency Matters – See How We Can Help
Learn more about Substantive Research industry first apples-to-apples market data price benchmarks for market data procurement professionals across index providers, rating agencies, pricing and reference data, research/analytics and ESG.