Substantive Research White Paper reveals state of Market Data pricing ahead of FCA Wholesale Data Markets Study
Aggressive pricing leads to ‘endless cycles’ for market data consumers as they never ‘catch up’ with vendor increases
- Major vendors hike prices by up to 50% for the same use cases due to ‘changes in pricing structure’.
- At the same time, 65% of surveyed firms are being told they are on deep discounts and are being compelled to pay more to be in line with peers.
- ‘Removal of discounts’ is cited as a significant justification for price increases, representing 67% of price rises in ratings; 36% of price rises in data terminals; 41% of price rises in indexes; 20% of price rises in data feeds.
London, 18 January 2023: Substantive Research, the research discovery and research spend analytics provider for the buy side, today publishes its White Paper outlining its latest findings on wholesale market data pricing.
The survey is published ahead of the FCA’s Wholesale Market Data Study, due to be released by 1 March 2024.
Context
To respond to concerns from both the buy side and sell side, in March 2023, the FCA launched a study into the wholesale market data market, using its powers under the Enterprise Act (governing consumer protection and competition laws), to look into the opacity and inconsistency of pricing reported by consumers throughout the industry. The FCA believes that ‘there are reasonable grounds for suspecting that some features of the benchmarks, credit ratings data and Market Data Vendor (MDV) services markets prevent, restrict or distort competition’. Having run a series of consultations and gathered evidence for over a year, the FCA is expected to announce its findings by 1 March 2024, covering providers of indexes, credit ratings data, terminals and market data feeds.
A March 2023 survey by Substantive Research found that some consumers of market data products were paying many multiples more than peers for similar products and use cases. For example, for certain index products, some institutions are paying over 26 times (2632%) more than peers. A more recent study by Substantive Research showed that vendors were raising prices aggressively on renewal, 12%-13% on top of inflation during the latest renegotiation cycles.
Overall findings of the latest Substantive Research White Paper
With 90% of surveyed firms in the White Paper renegotiating market data supply agreements in 2023, the impacts of price rises were acute, against a backdrop of heightened market volatility, an uncertain outlook, and significant cost pressures for both the buy and the sell sides.
The White Paper survey included both buy and sell side organisations (for details, please see the ‘Universe of companies’ below).
- Several major vendors’ prices rose by up to 50% for the same use cases due to ‘changes in pricing structure’.
- 65% of firms surveyed were told by vendors that they were heavily discounted and were compelled to pay more to be in line with peers.
- ‘Removal of discounts’ was a significant justification given by vendors for large market data price increases, representing 67% of price rises in ratings; 36% of price rises in data terminals; 41% of price rises in indexes; 20% of price rises in data feeds.
- In indexes, changing use cases represented just 11% of the justification for price increases from vendors, with 33% of justifications citing the addition of new licenses to existing contracts and 10% of increases put down to ‘new pricing models’.
- The majority of price increases in data feeds (80%) were due to changes in use case, with the remaining 20% justified by ‘removal of discounts’ (as mentioned above).
- ESG data pricing, including ESG ratings, is rising by an average of 33% for renewals and 35% for year-on-year increases, albeit from a much lower base when compared to other market data products. This is due to the fact that many consumers of ESG data are still in trial phases with different providers and are transitioning from heavily discounted trial rates to longer-term pricing structures.
Mike Carrodus, CEO of Substantive Research, said: “Our latest study highlights once again the importance of the FCA’s review into pricing practices for wholesale market data. Both the buy and sell sides will be waiting with bated breath for 1 March, to see what conclusions the FCA has reached. As the FCA announced it was using its powers under the Enterprise Act, the market is hoping for significant changes to the way this market is run, anything less and consumers of market data will have to make fundamental changes to their data budgeting and procurement processes.”
He added: “A key dynamic we’ve uncovered is that by the time a consumer’s discounts are removed over a multi-year agreement, vendors have raised the ‘standard’ price again, and by a lot, sparking another negotiation. This means that firms procuring market data never catch up with what vendors say they should be paying. Vendors are justifying price increases by saying it is bringing firms in line with what peers are paying, but these increases are constantly being applied to the entire market.”
The edited highlights of the White Paper are available here.
For the full White Paper, please get in touch via: info@substantiveresearch.com
Universe of companies covered by the White Paper:
Buyside – 40 firms, Long only/HF 70%/30%, UK&EU/North America 65%/35%; Total AUM represented $17tr.
Sell side – 20 firms, UK&EU/North America 50%/50%; Total Assets represented $20tr.
About Substantive Research
Substantive Research monitors and curates investment research and provides data-driven analytics on research and data spend to financial institutions that represent a combined AUM of more than $18 trillion and total assets of over $25 trillion.
Via the Substantive Research platform, research and data consumers can compare their budget allocations and processes and benchmark consumption habits versus their peers, to optimise their overall research and data spend.
In 2021, Substantive’s offering expanded to include an award-winning ESG Dashboard that provides a searchable database of more than 140 ESG providers, mapping out the ESG data market and showing the choices available. This gives customers the opportunity to discover and compare suppliers of ESG data all in one convenient place, as well as providing confidence that they are gaining accurate views of actual ESG performance. Substantive Research’s ESG Dashboard won the “Best ESG Data Initiative” Award at the WatersTech Inside Market Data Awards 2022.
