In response to what it says were concerns expressed by some respondents to a previous call for input on the issue, the UK’s Financial Conduct Authority (FCA) is to launch two market studies to gather more information and investigate access to data in wholesale markets.
The FCA says that limited competition in the markets for benchmarks and indices, credit ratings and trading data may increase costs for investors and affect investment choices. In response it plans to launch one study in the middle of 2022 which will will look into concerns that complex contracts for benchmarks and indices prevent switching to cheaper, better quality or more innovative alternative providers.
By the end of the year, the regulator says it will launch a second market study to assess whether high charges for access to credit ratings data is adding costs to investors and limiting new market entrants.
The FCA will also now begin gathering further information on competition in the market for wholesale trading data. Trading data include information on how many financial instruments are being traded, what people are prepared to pay for them and the price at which trades are executed. It says that concerns have been raised that limited competition may increase costs and have an impact on the types of assets that investment managers buy and sell. It adds that a lack of competition could affect the quality of wholesale data and mean increased costs for investors.
“Effective competition is central to ensuring markets work well and is at the heart of the FCA’s wholesale strategy,” the regulator says. “To identify potential issues in the markets it regulates, the FCA can use one of its deepest analytical tools – the market study – to look more closely into these markets.”
The Full FX View
While there is little doubt this initiative is going to mainly focus upon fixed income and equity markets, the foreign exchange industry is likely to feature in some shape or form. FX market participants have previously expressed concerns about the value of market data being delivered by the primary FX CLOBs, especially as volumes on those venues have declined.
Broadening the access to data for the FX industry will not be easy, however, because as has been shown with the failure of what originally the FastMatch Tape, and the lack of a genuine alternative since, this has to be a user-driven initiative – if alternatives are to be offered those wanting competition have to want to use them and see value in them.
If it is a difficult proposition in spot markets, it will probably be even harder in swaps and derivatives, where the information being shared is probably even more proprietary. Fragmentation of market data is probably not high on FX market participants’ wish lists for 2022.
The other area of interest could be benchmark fixes. While there are few complaints about the cost of the WM-managed fixes, that could be because those paying the fees don’t really bother themselves with such matters in a trade that is, to them, largely administrative. Throw in the willingness of come institutions (still) to offer benchmark fixes at “competitive” prices and there is a lack of momentum to study its use.
It will be interesting to see, however, if the FCA study raises the prospect of alternative mechanisms and methodologies, as currently exists with the advent of Raidne’s Siren Fix over a longer window. Sources say they latter is starting to garner increased attention from some funds, therefore it has to be considered a risk to WM that an FCA study into competition provides momentum for this growing interest.
“Access to wholesale data is really important for those who want to make investment decisions, without it, they lack the information they need to make properly informed choices.” says Sheldon Mills, executive director, consumers and competition at the FCA. “Our Call for Input and planned market studies are intended to ensure that competition is working well, that information is available to market participants that want it, and that innovation is keeping up with market developments.”