FX: Stemming the tide of rising data costs

FastMatch revealed in 2016 it was working with other platforms and market makers to create a consolidated tape for FX to provide a last-sale data feed with price, size and timestamps.

However, despite its worthy ambition to provide more data at lower cost, the voluntary participation aspect of the foreign-exchange consolidated tape (FXCT) project was an obvious limitation.

FXCT was inspired in part by the Consolidated Tape Association, which oversees the dissemination of real-time trade and quote information on a number of exchanges. Yet the efficacy of this initiative was thrown into question by a recent report by the Healthy Markets Association, which indicated that non-competitive forces for equity market data have created substantial upward pressures on prices.

The report notes that a market participant who wanted the fastest connections with the most relevant trading information for Bats, New York Stock Exchange and Nasdaq has seen its costs rise from $72,150 per month on June 1, 2012, to $182,775 on June 1, 2017.

Roger Rutherford, ParFX

ParFX chief operating officer Roger Rutherford describes market data fees in spot FX as one of the most opaque areas of trading, suggesting that many platform providers offer special deals to those with the deepest pockets and different cost packages that are dependent on customers’ style of trading or overall volumes traded.

“Unfortunately, these expensive market data packages have become a harsh reality of financial markets and continue to compromise the ability of institutions with less financial resources to operate on a level playing field,” he says.

“These pricing models also make it more difficult for smaller players to access the market.”

In recent years, there has been a notable focus on the buying of faster market data packages to gain a competitive advantage. However, the costs and fees associated with this data have remained stagnant or indeed increased.

According to Rutherford, it is difficult to justify such pricing models when not only have technology costs decreased but trading volumes have also fallen significantly.

“The ‘race to zero’ means that some institutions feel pressured into purchasing additional market data packages, connection points and terminals,” he adds.

Matt Hodgson, Mosaic Smart Data

Matt Hodgson, CEO of data analytics firm Mosaic Smart Data, accepts that the importance of data to processes such as algorithmic trading and transaction cost analysis means it is hardly surprising that trading venues are charging more for it. 

However, he says this presents a challenge for FX market participants, as the cost savings they are achieving from cloud technology, open source and API [application programming interface] trading are being largely cancelled out by higher data costs.

In need of disruption

Addressing this issue must be one of the key technology focuses for the FX market, and to do so participants ought to look to the data generated by their own trading activity, says Hodgson.

“Trade data is spread across desks in different databases and held in different formats,” he adds. “If it was brought together into one secure, standardized data lake, it could really speed up firms’ big data adoption and slash the cost of buying in market data at the same time.”

Market data is the business most in need of disruption in the financial markets. Without data that is independent, reliable and reasonably priced, markets will continue to be controlled by large groups whose principal source of power is other people’s data.

By breaking apart the embedded connection between reference data and trading platforms, it becomes possible to make data available more cheaply.

That is the view of New Change FX CEO Andrew Woolmer, who says the only way to do this is to move from post-trade benchmarking to live-price benchmarking, a move that appears to have been sanctioned by the European Securities and Markets Authority, with new rules for post-trade data contribution being coupled with a more lenient regime for new price benchmarks under the new EU benchmarks regime.

“In addition, PRIIPs [packaged retail and insurance-based investment products] rules require that FX transaction costs are measured against a mid-rate price benchmark aggregated – not simply gathered – from at least two sources,” he says.

“Clearly, there is huge amount of opposition to this from the established data providers.”

In response, data providers say they are making efforts to help traders. A spokesperson for Deutsche Börse explains that it is in the process of launching a new FX market data offering, although pricing details have not yet been published, as it is still in the test phase.

“This new offering – based on prices generated on the 360T platform – aims to provide the market with an outstanding data feed with low latency,” he says, adding that is some areas market data fees have fallen. “For example, we have announced a reduction of our market data fees for retail clients beginning next year.”

Interactive Brokers leverages its technological advantages to keep costs low and provides its trading tools to clients at no cost, observes a spokesperson for the US-based electronic brokerage firm.

“We do charge for some research, but also provide a great deal of research for free,” she says. “The costs are clearly outlined online and we believe others in the industry should also provide transparent pricing.”