Increased operating costs are affecting investors and dealers in capital markets across all major securities jurisdictions, mostly because of the rising cost of market data, says the president and CEO of the Investment Industry Association of Canada (IIAC).
In a recent op-ed, Ian Russell says market data costs are included in the cost of investing and typically passed through to the investor, far outstripping inflation.
The IIAC estimates that fees for market data have increased on average about 11 per cent a year during the past 13 years. “This increase in data fees is astounding by any measure, especially in view of the modest underlying annual inflation of less than 2 per cent and technology applications that should lower the cost of data packaging and distribution.”
Growing data fees hurt small specialized funds
Russell says the data fees paid by asset managers will have a disproportionate impact on small specialized funds investing in speculative, small-cap publicly listed and private equity shares, interfering with the capital formation process in the small business sector.
The traded prices of equity shares and exchange-traded funds on individual stock exchanges, trading platforms and stock market indices are required by investors and dealers to ensure best trade execution, and to measure trading performance against defined index benchmarks for passively managed funds.
[But] “this near inelastic demand for transaction prices has given stock exchanges and other trading platforms the latitude to raise fees for their market data.”
Continuously rising market data costs taking place around the world
These “relentlessly rising” market data charges are taking place throughout Europe, Canada and the United States, adds Russell.
And yet, he said, regulators have been “strangely benign, seemingly reluctant to disapprove continued requests for data fee increases.”
However, in May, the U.S. Securities and Exchange Commission (SEC) announced a set of rigorous guidelines that stock exchanges and marketplaces must follow when submitting requests for proposed market data charges.
Foreign regulators, including the Canadian Securities Administrators in Canada, are watching developments in the U.S. closely, particularly to see if the new guidelines will break the steady upward trend in data fees charged to investors and intermediaries. “We are hopeful the SEC action will spur a new approach to the scrutiny of market data fees in Canada,” said Russell.