UK-based research advisory firm, Substantive Research, recently released its latest study on the state of the market data industry in its Wholesale Data Markets White Paper.
The Latest Cycle of Price Hikes
The Wholesale Data Markets White Paper found that over 90% of surveyed firms were renegotiating market data supply agreements in 2023. Substantive Research uncovered numerous rationales for price hikes for both buy and sell-side organizations. Price increases of up to 50% were attributed to ‘changes in pricing structures.’
Furthermore, 65% of firms blamed existing heavy discounts as another rationale behind the price hikes. This factor represented nearly 67% of price increases in ratings, 36% of price rises in data terminals, 41% of price hikes in indexes, and 20% of heightened prices in data feeds.
The majority of price increases in data feeds (80%) were due to changes in use case, with the remaining 20% justified by ‘removal of discounts’ (as mentioned above).
With indexes, changing use cases represented just 11% of the justification for price increases from vendors, with 33% of justifications citing the addition of new licenses to existing contracts and 10% of increases put down to ‘new pricing models’. As cited above, 41% of the justification for prices hikes for indexes was due to previous discounts.
ESG market data also saw new highs, with the average price rising 33% for renewals and 35% for year-on-year increases. The driving factor behind lower price hikes in ESG data was that many consumers are still in discounted trial phases and not subject to new long-term pricing structures.
Mike Carrodus, the CEO of Substantive Research, describes, “A key dynamic we’ve uncovered is that by the time a consumer’s discounts are removed over a multi-year agreement, vendors have raised the ‘standard’ price again, and by a lot, sparking another negotiation. This means that firms procuring market data never catch up with what vendors say they should be paying.”
Our Take
Market data costs have been heavily discussed over the past few years, as asset managers and investment banks are forced to pay higher costs. Despite the alternative data industry growing in size and benefits, firms still need access to traditional financial data, like securities pricing, volume, and economic data.
In concert with the need to access market data, the oligopoly power held by the major market data vendors Bloomberg, Refinitiv, Factset, and S&P Global have allowed these vendors to push market data costs higher with little fear of client loss.
Another factor driving the surge in buy-side market data spending is data quality. The quality of data provided by traditional vendors has been improving. With new data sets and cloud computing coming into play, firms are seeing the value in market data and are willing to foot the higher bill.
Nearly 72% of participants in the Coalition Greenwich and SIX study indicated they used market data daily, playing a significant role in the decision-making process. The more reliance asset managers and investors place on market data, the more providers are likely to get away with heavily increased pricing structures.
Rising market data prices have led consumers to turn to regulatory agencies for help controlling price movements. The Financial Conduct Authority has invoked its power under the Enterprise Act, looking to secure more pricing consistency over the next few years. The FCA is in the midst of a year-long pricing study and is expected to announce its findings in March 2024.
As firms begin to ‘vote with their dollar,’ the FCA intervening, and alternative data use continuing to spread, we would expect price fluctuations to slow in the coming years. However, only time will tell how providers and consumers navigate newfound market changes.
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