European Financial Information Summit 2011: Banks Say Exchanges Must Simplify Usage, Pricing Models

Despite mounting pressure from sell-side firms and increased competition from market fragmentation, appeals for exchanges to simplify their data usage and pricing policies are going largely unheeded, panelists said, warning that if the administrative burden of managing market data is not reduced, firms may turn to other trading venues for data.

Some exchanges have sliced data into “far too many products to manage, which are far too complicated to administer,” and could lead to compliance issues as well as higher costs, panelists said.

However, Paul Hood, market data compliance and exchange business analyst at Citigroup, added that fostering good relationships with exchanges can help allay firms’ frustrations, especially when exchanges introduce new models or policies. “If the relationship is good, exchanges can use you as a sounding board if there are new products in the pipeline, and find out from you if they are approaching it in the right way,” he said, citing the London Stock Exchange as an exchange that engages clients in this way. “You still have to pay the same as everyone else, but you get an insight into what direction the exchange is moving.”

Panelists agreed that relationships are key to navigating the policy minefield, but as exchanges diversify their revenues streams, developing successful relationships becomes more difficult, said Kenneth Richmond, global head of commercial market data at RBS. “Exchanges are now made up of different profit centers—the trading area, the market data area, the publicity area. They don’t perceive their customers as a single organization, and they don’t seem to want to come together on their side to see how they could have a more productive relationship with you,” he said.

According to the panel, firms are trying to give feedback to exchanges, and in particular called for more transparency around the fees charged by exchanges, and more standardization around definitions—though Richmond noted “resistance to change.”

The panel advised delegates to establish a deeper knowledge of the marketplace to avoid becoming over-reliant on any exchange. “If you want to look at the FTSE 100 for instance, you don’t have to source prices from the LSE—you could look at BATS, Chi-X or Turquoise to get an idea of where the marketplace is,” Hood said.

Indeed, supporting new venues can help them gain traction and create a more competitive market overall, said Juan Corchete-Canavan, global head of market data and exchange fee sourcing at UBS. “In Europe, fragmentation has been driven by … regulation and technology, which has enabled competition to enter the market. You need new entrants to bring costs down... and drive innovation,” he said.