A GUIDELINE TO A COST BENCHMARK OF MARKET DATA – HOW TO OBTAIN REASONABLE PRICES OF MARKET DATA

Following the introduction of MiFID I, the costs of access to trading venues’ market data have increased significantly as documented in our report ‘Pricing of market data’. Against this background, the Danish Securities Dealers Association has asked Copenhagen Economics how new regulation consistent with the regulatory framework prescribed by MiFID II/MiFIR can be implemented to ensure reasonably priced data.

We suggest imposing a revenue cap and recommend that the actors follow the five-step regulatory wheel outlined below every third year:

1. Trading venues collect and submit data on production costs to regulator
2. Design of cost benchmark models through regulator and trading venues estimating their suggested revenue cap
3. Dialogue between regulator and trading venues based on data analysis
4. Agreement on the overall revenue on market data
5. Implementation of the revenue cap and regulator monitors that trading venues comply with the revenue cap agreement

However, under the current regulatory structure, ESMA does not have the remit to implement and enforce a binding revenue cap unless step 4 lead to an agreement.

As such, we let step 1-4 constitute a dialogue-based cost benchmark model in itself but without any strict revenue cap. Once the regulation has been amended to allow for a hard fallback mechanism, step 1-5 constituting the first-best regulatory model can be put in place.

The study is commissioned by the Danish Securities Dealers Association.