FCA to review data and analytics in wholesale financial markets

Written by Alex Hamilton
10th March 2020

The UK’s Financial Conduct Authority (FCA) has issued a call for input (CFI) as part of a review in how wholesale financial markets use data and advanced analytics.

The FCA wants to know if participants have concerns over how data is sold or used

The FCA plans to use its CFI to determine whether it needs to do further work to address any harm that it identifies, and to study the value offered to market participants and whether systems are competitively sold and priced.

“Wholesale financial markets play a vital role in our economy, and it is important that they work well, says Christopher Woolard, executive director of strategy and competition at the FCA.

“There is rapid and wide-ranging innovation in data in wholesale markets as firms become better able to gather and analyse data.

“More efficient, comprehensive and timely data for wholesale market participants have the potential to generate significant benefits.

“But these changes may also create new risks that may require us to act. We are launching this review to better understand any risks and assess whether FCA action is needed,” states Woolard.

The CFI will concern the use and supply of market data with a particular focus on trading data and benchmarks.

Trading data and benchmarks play a major role in the upkeep of financial markets, and are used to trade, make investments, evaluate positions and meet regulatory obligations. The FCA wants to know whether users have concerns with the way trading data, benchmarks and vendor services are priced and sold.

The FCA’s move reflects a growing concern among regulators on both sides of the Atlantic about a potential concentration of valuable data among a handful of market participants, as reported on the FT.

The exchange industry has been in a phase of consolidation, most notably with the LSE’s agreed $27bn deal to buy Refinitiv. Without access to data, market participants cannot meet regulatory requirements such as getting the best price on trades, reporting transactions and valuing assets. However it is frequently one of the most contentious issues between exchanges or other trading venues and their users.

For the exchanges, data has become a regular and steady source of income, particularly as low trading volumes have curbed the commissions they make from matching buyers and sellers.

Opimas, a capital markets consultancy, estimates that exchanges around the world collectively made $6bn last year from selling information, compared with just $1bn in 2005. But their customers, such as banks, high-frequency traders and asset managers, complain that they help create the data, and platforms are exploiting their position by charging fees far in excess of the cost of producing and distributing it.

The CFI is open for feedback until 1 May 2020. A feedback statement is planned for publication in Autumn 2020, which will set out the findings and any next steps.