Don’t buy it, if it’s not worth it!

Back in May, BATS Chi-X Europe announced that it will start charging for market data from 1st October. Last week Turquoise followed its competitor, announcing that it too will introduce fees for market data, effective from 1st November. While the former’s move could have been explained by its strong market share, this is not the case for the latter. BATS Chi-X had a market share of around 25% in major European indices when it announced the change in price model while, at 5%, Turquoise’s market share today mirrors that of the BATS and Chi-X shares combined back in mid-2008. Imagine the market’s reaction if BATS or Chi-X had introduced market data fees four years ago! At that time such a move might even have killed its business altogether but, today, Turquoise seems confident that it can get away with it. So what’s changed?

Most importantly, expectations about the future have changed. In 2008 everything seemed possible; market participants expected massive growth of the newly founded MTFs although they were not sure yet which would fare better. Thus, at that time the most important goal for any new entrant was to gain market share. Today, things are different. Market shares across MTFs are much more stable than they were four years ago. Now exchanges are not only driven by uncertain gains in the future but they also focus much more on profits earned today with the order flow they have already.

This in itself is not cause for concern but, considering what Brussels thinks about an all-encompassing tape, the move to charge for data from non-home markets does become worrisome. If Brussels requires the consolidated tape to be all-encompassing, then a consolidated tape provider must buy all the market data, regardless of whether or not it is worth the money. This could leave a large number of investors seriously out of pocket and would conflict with the regulator’s main goal to produce a consolidated tape at reasonable cost. The market data fees charged by home markets are already significant, so adding a potentially unlimited number of non-home markets will just make the cost of a consolidated tape unreasonable. It is fine for any exchange to charge for market data, but then everyone should also have the freedom to not buy it, if they don’t think it’s worth it.

2 Responses to “Don’t buy it, if it’s not worth it!”
  1. steve grob says:

    I think this mixes up 2 different issues – pre trade and post trade. Particpants are free to choose whichever venues they like in their best execution policies and so will exclude venues they deem to be insignificant. The need for a truly consolidated tape is a post trade issue for the buy side to interpret the exceution quality of their brokers. Free services such as the Fragulator and Tradalyzer already provide this.

  2. Christian Voigt says:

    Yes I agree with you, the consolidated tape only refers to post-trade data and best execution relates to mostly pre-trade data. However as Dr Robert Barnes, MD at UBS, once said: “post-trade transparency is pre-trade transparency for the next trade” ( There is a good chance that a European consolidated tape will be the major benchmark for transaction costs analysis. If a trader does not have direct access to all those markets contributing to the tape, then the trader will consistently underperform. Traders cannot justify that to their clients. Therefore I worry that a poorly designed consolidated post-trade tape can cancel out any well intended best execution policy.

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