Financial watchdog to review competition concerns in market data amid fears over complex contracts for benchmarks and indices
The Financial Conduct Authority is set to review competition concerns in wholesale data markets as part of efforts to reduce costs for end investors.
In a market study starting this summer, the FCA will examine concerns that complex contracts for benchmarks and indices prevent switching to cheaper, better quality or more innovative alternative providers.
Benchmarks and indices are used by market participants like banks, clearing houses and asset managers to track and evaluate asset prices and investment performance.
Review: The Financial Conduct Authority has announced it will review competition concerns in wholesale data markets
The FCA said: ‘In response to a call for input, the FCA heard concerns that limited competition in the markets for benchmarks and indices, credit ratings and trading data may increase costs for investors and affect investment choices.’
Sheldon Mills, executive director, consumers and competition at the FCA, said: ‘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.
‘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.’
By the end of the year, the FCA 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.
Access to high-quality credit ratings helps investment managers assess financial risk, which in turn influences which investments they end up making.
The FCA will also now start gathering further information on competition in the market for wholesale trading data.
Trading data includes 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.
These data are supplied by venues – like stock exchanges – where these financial instruments are bought and sold.
Concerns have been raised that limited competition may hike costs and have an impact on the types of assets that investment managers buy and sell.
Access to wholesale data allows market participants who manage investments to identify and evaluate investment opportunities. A lack of competition could affect the quality of wholesale data and mean increased costs for investors, including, ultimately, pension savers.
The FCA said: ‘Effective competition is central to ensuring markets work well and is at the heart of the FCA’s wholesale strategy.
‘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.’