January 2025

Abstract

As policy makers search for growth and competitiveness in their financial markets, this Study analyses the evolution of equity market data businesses and fee structures at Europe’s largest incumbent stock exchanges and their impact on the market.

It finds that these exchanges are increasingly reliant on market data revenues to supplement a decline in their trading revenues. This results in high costs and restrictive clauses relating to the use of data that are hindering innovation and market growth with negative consequences for investors and issuers:

  • Since 2017, the cost of market data has surged far beyond inflation, particularly for certain participants and activities. This rise lacks a clear rationale, as there are no separate costs for producing market data, the exchanges bear no cost for data distribution and the costs of running a trading platform are decreasing.
  • Despite declining trading volumes, decreasing market share and fewer customers due to on-going industry consolidation and automation, the exchanges have managed to sustain, and even increase, their market data revenues.
  • These data revenues, are, growing as a proportion of the exchanges’ total equity market revenue which means there is an increasing pricing disconnect between the price for market data and the trading activity that underpins it. The exchanges’ ability to rely on these revenues appears to reduce the imperative to grow trading services.
  • When exchanges were not subject to competition in trading, data was free or had a very modest charge. Now, trading and data have become two separate revenue streams and it can be reasonably estimated that these exchanges have collectively earned a minimum of £5.67 billion/€6.7 billion from equity market data alone since 2007. Yet other new trading venues have been able to process as much or more volume than the incumbents and become profitable without relying on the same revenues from market data.
  • Equity exchange services are now a minority business that contribute a fraction of the overall revenues at the incumbent exchanges. At the most extreme, it contributes to only 3% of overall turnover at LSEG and Deutsche Börse. Exchanges have diversified into other higher margin asset classes or data businesses, including equity market data.

The Study concludes that policymakers should rigorously challenge the current separation of data revenues from trading revenues and recommends that legislators should oblige all trading venues to treat data as by-product of the trading process it underpins.

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