Influential foreign exchange trading venues that act as the reference price for currencies are facing a battle to maintain lucrative charges for their market data feeds, as growing competition and declining trading volumes threaten their position.
Regulators in both the US and Europe have been closely scrutinising the amounts charged by stock exchanges for market data in recent years and the cost has sparked a fierce struggle between clients and trading platforms. Data charges in currency markets have received much less attention, partly because profits have been big enough to distract from this cost and because of less stringent regulatory requirements.
However now some FX trading customers are pushing back against these high costs and many are voting with their feet. This presents a challenge for the “Big Two” incumbent platforms, CME-owned EBS Market and Refinitiv’s Matching, which currently act as key market data providers for currencies. Both face an uncomfortable problem: how to keep charging top prices for information about exchange rates if the majority of the market trades elsewhere.
Traders say the cost of top-quality FX market data, about $50,000 per month, has not changed in a decade, but its quality and usefulness have declined.
“Ten years ago you couldn’t be in the trading business without having access to those two data feeds. Now there are other ways to get information about prices,” says Phil Weisberg, head of strategic planning at tech company OneZero.
For now, both platforms retain their crowns as the preferred inputs into the pricing models of the top echelons of market makers. However, over the past five years, average daily trading volumes have declined by a quarter on both platforms. As trading activity has inexorably shifted from the venues, the data feed becomes more critical and valuable. It carries the prices that flow through the market. EBS and Refinitiv declined to comment.
In the three months to September, transaction revenues from the EBS business fell 15 per cent compared with that period last year, according to a regulatory filing from CME. Average daily volumes were 19 per cent lower at $63.3bn than in the same quarter last year.
Growing competition means equity market operators have had to reduce the fees they charge for facilitating transactions, says Ken Monahan, an analyst at financial consultancy Greenwich Associates. “This meant they have had to cut fees where they directly compete, in transaction fees, but are still able to charge for things they can uniquely provide, like market data specifically from their platforms,” he says.
Exchanges in equity markets have benefited from being able to raise market data costs because of legal requirements…
Read More: Foreign exchange data wars heat up as rivals take on ‘Big Two’