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Substantive Research Study Reveals Deep Inconsistencies In Market Data Pricing


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Industry-first Market Data Spend Analytics Service launched to shine a light into this opaque market 

London, 29 June 2022: Substantive Research, the research discovery and research spend analytics provider for the buy-side , today published headline conclusions on the current state of the Market Data pricing market, based on insights generated by its new Market Data Spend Analytics service.

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The challenge that Substantive Research solves for Heads of Market Data globally, is a lack of transparency around pricing and the availability of viable market data alternatives in key parts of the market , leading to annual costs increases and hard-to-navigate provider agreements.

In response to demands from its buy-side customer base, Substantive Research has created an industry-first“apples-to-apples” Market Data Spend Analytics service, which allows long-only asset managers, wealth managers and hedge funds to truly understand and compare their market data payments and budgeting with the wider market and against their peers.

As an example of the insights available from its service, Substantive Research today provides headline conclusions on the index markets.

Overall Findings On The Index Markets
  • Pricing is not consistent - there is large variance in pricing and little or no correlation to the size of the firm consuming the market data. Even accounting for specific“apples- to- apples” use cases, the range of inconsistencies applied to pricing post-negotiation is between 10% and 50% .
  • Buy-side budgets vary from 0.55bps to 1.27bps of AUM - this is one of the largest costs of doing business for an asset manager and it is increasing materially YoY.
  • Average potential savings per provider are $360k - and with many institutions using a long list of providers, this figure scales up rapidly.

Specifically, the opacity of the index market is evident in the large pricing disparities between wholesale market data buyers with similar use cases:

  • The pricing that buy-side institutions receive for supplying a single index from the same provider differs by an average dispersion of 21% - the overall range from lowest price to highest price can be as high as 219% (some institutions are paying more than twice as much as peers)
  • For reporting licenses the average dispersion in pricing can be up to 37% - the range from lowest to highest can be as high as 472% (some institutions are paying almost five times more than their peer group)
  • Average spend on index products per provider can be broken down into 44% spent on licenses and 56% spent on the underlying benchmarks - and licenses are where the greatest price variability occurs for similar use cases.

Conclusions are based on an aggregated, market-wide perspective, which provides headline data on the index market, a core area of focus and cost for the buy-side.

This comes at a time when global spend on financial market data reached a record $35.6 billion in 2021 , according to the latest Financial Market Data & Segment Sizing 2022 research from Burton-Taylor.

Mike Carrodus, CEO of Substantive Research, said “After two years of intensive work on the benchmarking methodologies required to return 'apples-to-apples' comparisons, we are delighted to be able to shine a light into this opaque market. We respect the complexity of this industry and the relationships between buyers and sellers, which has demanded a forensic approach to every benchmark delivered. We look forward to bringing further insight to new client segments in the summer, most notably, extending the Market Data Spend Analytics service to the banking community - a section of the market with similar challenges but very different budget characteristics.”

Carrodus adds, “The power dynamics of market data are fundamentally different from the research market - the leverage in market data often sits entirely with the provider. We can't change that, but it's clear that this market is maturing and providers are changing their behaviour gradually. Incumbent providers have ensured dominance in certain key areas, but they also acknowledge that transparency can only be a good thing for the industry.”

Transparency and competition are also front-of-mind amongst regulators - the FCA has announced a number of market studies on charges, competition and transparency in wholesale trading data, credit ratings, benchmarks and indexes. Specifically in the index industry, the FCA will look into concerns that complex contracts for benchmarks and indices prevent switching to cheaper, better quality or more innovative alternative providers.

In January 2022 Sheldon Mills, Executive Director, Consumers and Competition at the FCA, commented that 'access to wholesale data is really important for those who want to make investment decisions. Without it, they lack the information they need to make properly informed choices. Our Call for Input and planned market studies are intended to ensure that competition is working well, that information is available to market participants that want it, and that innovation is keeping up with market developments.'

Substantive Research's Market Data Spend Analytics Service

Having benchmarked pricing in investment research for over five years and (most intensively post-MiFID II), Substantive Research can now provide clients with granular insight into the full breadth of their data budgets, including index providers, rating agencies, pricing and reference data suppliers, research/analytics and ESG. The service includes:

  • Price benchmarks that isolate pricing drivers by market segment, product and provider matched to specific client use cases.
  • Budget benchmarking - insight into the resourcing of data budgets including key internal best practice, growth in overall budget as well as in each specific segment
  • Price movement: which providers are changing business and pricing models
  • Alternatives and adoption rates per provider: where are peers succeeding in using cheaper and/or better alternatives, and which data providers are gaining traction rapidly?
  • Substantive Research's data and insights are delivered via an interactive dashboard, as well as via in-depth reports

These insights will allow the consumers of market data products to finally understand where they are getting a good deal and where they aren't; understand where and why their peers are adopting new alternatives; and finally understand where to devote their time and focus in order to become more efficient.

About Substantive Research

Substantive Research monitors and curates investment research and provides data-driven analytics on research spend to buy-side professionals who manage assets from $500million to $3 trillion and represent a combined AUM of more than $10 trillion.

For more information please visit our website , follow us on Twitter or on LinkedIn

Updated on Jun 29, 2022, 11:40 am

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