Opinion: Blunting the rapid escalation in market data fees to improve investment returns

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Blunting the rapid escalation in market data fees to improve investment returns GlobeBusiness

The traded prices of equity shares and exchange-traded funds on individual stock exchanges and trading platforms, and related array of stock market indices, are required by investors and dealers to ensure best trade execution, and to measure trading performance against defined index benchmarks for passively managed funds. This near-inelastic demand for transaction prices has given stock exchanges and other trading platforms the latitude to raise fees for their market data.

Through all this, the regulators have been strangely benign, seemingly reluctant to disapprove continued requests for data fee increases. Some regulators, such as our Canadian Securities Administrators , have defined methodologies to assess proposed fees based on market share of the marketplaces, the rationale for the fee increases, the underlying costs to produce the data and resulting widening in margins and the fairness of charges to investors, particularly small investors.

Canadian and foreign regulators may, based on the general wording of the regulation, ask marketplaces similar questions to justify their fee increases. However, in the U.S., stock exchanges must now explain and justify in detail, against a set of specific public interest guidelines and directions, why fee increases are reasonable and fair and what their impact is on competition and investors in the marketplace.

 

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