Fixed Income Market Data Costs Rise 50%: AFME
Posted by Colin Lambert. Last updated: February 7, 2022
In a story that will be familiar to FX market participants, a survey released by the Association of Financial Markets Europe (AFME), finds that over the past five years, fixed income data costs have soared 50%, outstripping price increases elsewhere in capital markets.
The survey was conducted by Expand Research using data provided by AFME members, and the association says there are “multiple factors” behind the out-sized increase, not least that AFME members have to purchase data from multiple sources, which results in a duplication of costs and documentation.
AFME chief executive Adam Farkas, in his introduction to the report, also notes that “every year, the cost associated with [market data] feeds increase at a significant rate”, and are in addition to existing charges for making markets in the first place.
“Our members are concerned that the cumulative impact of these increasing costs on the fixed income market are being underestimated,” says Farkas. “If left unaddressed, some market participants might be forced to scale back their data purchases to a minimum. In some cases, it could also lead to strategic decisions to withdraw from certain markets.”
In response to the survey, AFME says achieving a “reasonable” cost structure, the market needs to apply a set of industry-developed standards that include standardised pricing models across vendors; uniform formats in which data is stored and provided; and consistent procedures for accessing the data. “Agreeing on the nature of these standards should be a collaborative effort between all parties with reporting obligations,” Farkas suggests.
While equity markets exist with a consolidated Tape, which has been suggested for fixed income markets, Farkas says a fixed income Tape “will not solve the fundamental issues of data costs…or the need to purchase data for specific day-to-day activities (such as primary feeds or instrument reference data).”
The survey establishes a benchmark by finding that market data costs more generally across the sell side have increased by 25% in the five years to Q3 2021 when it was taken. Within this, the four major drivers have been terminals, the cost of which has risen almost 17%; pricing and reference data (up 16%); exchange data (+35%) and research and analytics (+50%). These rises are from an indexed (to 100) spend of 38% on terminals, 17% for pricing and research data, 11% for exchange data and research and analytics. Datafeeds, indices and ratings were initially indexed at a combined 16% of costs in Q3 2016, they have also collectively risen 50%.
Against this, and benchmarking to 2017 (after 2016 saw a decline in spend), the survey finds that fixed income costs rose by 50%, but the number of users only rose by 15% in the same period. AFME points out that participants in the survey stressed how a “significant” increase in the market data costs was not driven by new data needs, but rather due to “price increases and changes to vendor commercial models”.
Pricing and reference data leads the way with a 33% spend increase over that time, followed by terminals at 22%, research and analytics at 14%, indices at 11%, exchanges at 10%, ratings at 8% and datafeeds at 3%. The survey finds that pricing and reference data spend from two anonymous “major evaluated pricing members” has risen 50% and 83% respectively since 2017. The latter number pales into insignificance, however, when placed alongside a 183% increase in data spend with inter-dealer brokers over the same period.
Three data vendors in the MTF (multilateral trading facility under MiFID II) have seen an increase in spend by the sell side of 46%, 93% and 107% since 2017, AFME also observes that anecdotal evidence from its members indicates MTFs are additionally increasing revenues through higher execution fee schedules.