Opening Cross: Data Fees—Everyone Else is Doing It; Why Can’t I?

Nobody likes fees, especially if their purpose is merely to align with fees already charged by others.

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Like a drunk uncle at a family get-together, most data consumers view market data fees as an unwelcome guest—a necessary and inevitable evil that must be endured as a condition of participation in the capital markets “family.”

For example, the London Metal Exchange will introduce new fees in April covering use of the exchange’s prices for purposes other than trading on the exchange, such as for valuations or as a reference price for over-the-counter trades conducted away from the LME.

To its credit, LME is offering a full waiver of the fees to those firms who actually trade on the exchange, effectively charging only those recipients who derive some benefit from the data but who do not return the favor by trading on the exchange (and paying trading fees).

However, one of the stated motives for the online licensing portal that accompanies the new policy and fees—if not for the fees themselves—is to bring the exchange in line with its peers. Though LME doesn’t explicitly cite it in this instance, other exchanges and data suppliers frequently justify fee increases with the excuse that they’re merely aligning with what others are already doing. To me, this seems a little disingenuous, like saying “Everyone else is doing it; why can’t I?” or concluding that if the market can bear one supplier charging that rate, it can bear everyone charging the same rate. While not collusion, this practice certainly seems to stifle competition. But it also promotes an ever-increasing spiral of fees to levels that some say are not justified by the value of the data as market share declines.

For example, according to a recent report from Tabb Group, exchange data revenues have increased 62 percent over the past five years, while over the same period liquidity provider revenues fell by 75 percent, institutional equity commissions fell by 20 percent, and broker equity trading revenues fell by 29 percent.

In this issue’s Open Platform, Rafah Hanna of data consultancy DataContent—who has also worked in data licensing roles at MTS, the London Stock Exchange, and NYSE Euronext—weighs in on the topic of fees, which has been reignited by the Portuguese investor group-backed StopMarketDataFees.com petition. Fees aren’t “immoral,” as the group claims, Hanna says, but they can be unreasonable, opaque, and hard to comply with. His solution: firms must act more like activists if they are to make any headway against ever-increasing fee levels.

To an extent, this is true: trading and investment firms haven’t done enough at the executive level to combat fees, and have left the responsibility with market data groups. For example, had firms rallied against the demutualization of exchanges into for-profit entities instead of slavering over the one-off payout for their positions, fees might have remained at a more reasonable level.

At the trading venue level, it’s not unheard of for consumer to collaborate on setting up their own new venues, only to back away when key exchanges reduce the offending fees. Firms have even tried their hand at owning data vendors. And though this didn’t go well in the past—such as Bank One’s dalliance with Moneyline Telerate—I can see firms trying this again to control vendor fees, especially given that many may be suspicious of Intercontinental Exchange’s motives for acquiring Interactive Data, and also given the consortium of user firms currently backing messaging startup Symphony. If firms really want to control the fees they pay, they may need to take full control of those charging the fees.

At the end of the day, that unwelcome, drunk uncle is still part of the family, just as data fees are part of the symbiotic environment of market data that ensures service levels and funds future developments. You can’t get rid of either: you can’t turn away family any more than you can do much to negotiate prices. But, just as you may be able to put the uncle to work cleaning dishes, you may be able to get more out of your data deals and negotiate more for the same amount of money.

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