MiFID II: Reasonable cost market data in principle, not practice18th January 2018
MiFID II in principle pushes exchanges to offer cheaper, disaggregated market data – separate packets of pre and post trade content. In practice where these feeds are available they are often offered in a way that makes them too expensive to be a viable alternative to current pricing feeds. As a result, the firms that would benefit, like TIM Group, cannot access the disaggregated feeds even where they exist. Regulators could encourage a few changes that would improve the situation immensely:
- The exchanges could remove the requirement for vendors to have to take this data from a separate feed and instead allow them to derive the disaggregated data from a single feed and distribute this to their customers. This could increase the uptake of these feeds by data vendors as it will reduce the cost to provision them to the wider market.
- Exchanges could allow re-distributors (i.e. the users who obtain their data from vendors) to create their own disaggregated packages (such as post-trade or pre-trade) from the current aggregated feeds carried by vendors. This would remove any work for the vendors and still meet the spirit of the regulation, whilst also removing barriers to wider adoption of these disaggregated datasets.
- More radically, perhaps, exchanges could remove redistribution fees from the standard feeds or greatly reduce these fees in certain circumstances or for certain levels of content. For instance, the aggregated delayed last trade + volume + BBO dataset (typically called level 1 data) could be made entirely free to redistribute or at least be provided at a substantially reduced cost for redistribution than it is today.
The reason disaggregated feeds are important is that many service providers and fintech companies only require a limited amount of pricing content. For instance, TIM Group only needs access to delayed post-trade (last trade + volume) data for our customers and our products – yet we have no choice but to pay high bundled redistribution fees for access to this content. This issue was recognised by regulators and MiFID II has attempted address this.
The regulation specifies that exchanges must slice or “disaggregate” their content into smaller constituent parts, with the aim of making these disaggregated constituents more easily accessible and cheaper than so-called aggregated feeds. It is commendable that at least some European exchanges have made these feeds available in advance of the 3 January effective date for MiFID II and that in these cases these feeds are indeed, at least in theory, cheaper than the aggregated, standard feeds in specific areas such as delayed post-trade data.
However, a major obstacle to wider adoption of this disaggregated data is that market data vendors have been slow to adopt these feeds. Not one vendor is carrying the Vienna Stock Exchange or Deutsche Börse disaggregated data, as two examples, at the time of writing despite the feeds being made available by these markets.
So, what are your options if you would like to access this disaggregated data? In some cases you may need a leased line terminating at the exchange, will have to pay an additional connection charge to the exchange and then will be required adopt and code to a new feed from the exchange, separate from your data vendor feed. This, absurdly, makes the disaggregated feeds more expensive, from a total cost of ownership perspective, than the current aggregated feeds available from vendors. In other words, you will actually pay more for less data and have higher maintenance costs if you choose to adopt these “lower cost” disaggregated feeds.
Until this is solved by vendors, exchanges or both (perhaps with encouragement from regulators) it looks like MiFID II’s promise of a reasonable price for market data will not be recognised. What are your views? Contact us at firstname.lastname@example.org to discuss further.