The World Federation of Exchanges (“WFE”), the global industry group for exchanges and CCPs, has published a letter in response to the European Securities and Markets Authority’s (ESMA) consultation paper on prices for pre- and post-trade data and the consolidated tape for equity instruments.
The WFE’s letter details its concern about how the ESMA proposals may in practice give rise to a loss of competitiveness of EU stock markets, and work against the EU’s goal of increasing levels of stock-market financing. The letter also makes clear that intermediaries pay for market data because it is valuable to the success of their trading strategies, noting that in 2018, the top five banking groups trading on EU equity markets reported revenues of €5.7 billion from their EMEA equity trading businesses. This contrasts with market data revenues of €245 million from the major EU exchanges.
The letter can be summarised as follows:
- Stock exchanges are characterised by non-discriminatory access and high standards of oversight, transparency, governance and disclosure.
- Market data is a joint product with trade execution, resulting from the overall activities of an exchange.
- The value of market data ought to be seen through the prism of the value it represents to those professionals and institutions who make commercial use of it.
- Price setting by the official sector is an extreme policy tool that can only be justified in extraordinary circumstances characterised by a lack of competition or market failure which is not addressable by other means. EU authorities demonstrably have the tools necessary to consider and enforce ‘reasonable commercial basis’ provisions of MiFID II. There is adequate competition and no evidence of market failure within the EU.
- The buy-side may be able to benefit from a consolidated tape of record which allows such institutions to easily examine the execution quality with a comprehensive overview of on- and off-venue liquidity. Such a consolidated tape in the EU should increase transparency; not merely reproduce what is already provided by data vendors.
- Exchanges must retain their ability to commercialise their data. To do otherwise would be draconian compared to other major markets, and severely limit the ability of the EU exchanges and trading venues to innovate and compete on global markets.
The WFE is engaged with authorities globally and in individual jurisdictions to discuss the nature of stock market data and the importance of valuing it correctly. The WFE set out its perspective in a July 2019 position paper aimed at global policymakers and stakeholders. It raised a series of pertinent questions, the consideration of which the WFE believes will help guide policymakers in adopting an approach to market data which supports strong and fair capital markets that drive growth and enhance corporate transparency.
Nandini Sukumar, Chief Executive Officer, WFE said: “Regulatory price controls could cause irreparable damage to EU equity markets’ global competitiveness, and undermine the objectives of the Capital Markets Union. MiFID II is still in its infancy and the fact is that the EU’s ‘reasonable commercial basis’ framework has been successful.
“We urge policymakers to avoid pressure to lump together the discussion of market data pricing with the consolidated tape; they should be considered on their own merits. While we see a potential use case for a consolidated tape of record, it must be emphasised that any regulatory intervention to bring about a consolidated tape should deliver against a clear public policy objective, and satisfy a cost/benefit analysis.”