Canadian securities regulators are considering whether they need to start regulating market data fees, which is something that much of the securities industry has demanded in the face of ever-increasing data costs.
The Canadian Securities Administrators (CSA) published a consultation paper Thursday that examines the cost of real-time market data, and proposes possible regulatory options to manage these issues, including capping fees in various ways, enhancing the transparency of fee setting, or creating a utility to distribute consolidated data.
CSA Consultation Paper 21-401 Real-Time Market Data Fees
The CSA does not propose a particular solution, stressing that this a consultation paper, not a position paper. “We are not advocating or taking a position on any of the options presented for discussion. We are interested in hearing industry feedback on the feasibility and effectiveness of the proposed options,” it says, adding that any regulatory proposals that come from this would be published for comment.
Nevertheless, the paper aims to address some of the major complaints with market data fees, including that the fees are too high, both individually, and in aggregate; that firms are required to buy the data by regulation, thereby creating a captive market; and that fee proposals and the process for changing fee models aren’t sufficiently transparent. The paper acknowledges that the costs of acquiring real-time market data have been escalating in recent years due to an increasing number of alternative trading systems setting up shop. Yet, there’s a concern that the regulatory environment may be contributing to these increasing costs too.
“Too high or excessive costs are a form of friction in the market. We would be concerned that such an outcome would be inconsistent with our mandate to foster fair and efficient capital markets. By not addressing these issues, we risk negatively impacting confidence in the Canadian capital markets,” the paper says.
Based on its review, the CSA paper concludes that the market data fees charged by the TSX and TSX Venture Exchange do not appear to be unreasonable in relation to their share of trading activity; but that the fees charged by smaller markets are high given their share of trading volume; and that the cost of consolidated data in Canada is higher than it is in the US.
Specifically, it finds that, while the total cost of accessing top-of-book data in Canada is less than in the U.S. in absolute dollar terms ($118.85per month in Canada, versus $173.99 in the US), when scaled for trading volume, Canadian data is approximately seven times more expensive than equivalent U.S. data. And, the the total cost of accessing depth-of-book data is about 10 times more expensive in Canada than in the U.S., when scaled to the trading volume (albeit still cheaper in Canada, in absolute terms).
“These findings are expected, given the greater scale of trading and number of professional data users in the U.S.,” the paper notes, pointing out that the total transparent consolidated trading volume is approximately seven times greater in the U.S. than in Canada. And, the U.S. has 10 times more professional data subscribers. “The greater size of the U.S. market allows for greater economies of scale, and the associated cost savings may be passed to marketplace participants. In addition, the higher volumes generate more trading revenue and may make an exchange more attractive to companies seeking to list, which will positively impact listing revenue and this means that U.S. marketplaces are less reliant on data fee revenue to sustain their operations,” it notes. Cost comparisons with other countries are less conclusive.
While Canadian data will likely never be as cheap as it is in the U.S., given the vastly different size of markets, the CSA’s paper nevertheless identifies a number of options to address potential concerns regarding both the size of the fees, and their transparency. It suggests that fees could be regulated a number of different ways, including: capping fees for ‘core data’, capping fees for marketplaces, capping fees for data sold through the information processor, regulating consolidated data fees charged by the processor and/or, mandating the creation of a data utility to operate on a cost-recovery basis.
As for addressing the transparency issue, it also considers whether amendments to market data fees and fee models should be published for public comment.
“Securities market information provided by real-time market data is critical to Canada’s equity markets,” said Bill Rice, chair of the CSA and chair and CEO of the Alberta Securities Commission (ASC). “We want to ensure that market data fee issues are addressed in order to maintain fairness and confidence in our capital markets.”
“We are publishing the consultation paper to get feedback to ensure that any solution that we propose is the right solution for Canada,” explains Susan Greenglass, director of market regulation at the Ontario Securities Commission (OSC). “The costs of market data have been escalating over the past number of years. As a result, we are looking at market data and the costs associated with its access to ensure that there is fair access to the data.”
The paper is out for comment until Feb. 8, 2013.