18.IV.3.1 Situation under the ISD

The EU used an overall bottom-up strategy in terms of data access under the ISD. The ISD text gave Member States the choice to decide whether, and if so to which extent, they wanted to provide data pricing-regulation.1 No harmonised ISD-rules were in place governing the prices for equity pre- and post-trade data, nor the conditions for accessing such data (e.g. use restrictions).2 Main reasons here were (i) the EU approach ‘to effect only the essential harmonization necessary’3 and (ii) the related ISD framework already permitting Member States to concentrate trading on RMs and/or make RMs responsible in reporting trades taking place outside the RM in question. The result would be less demand for data, given that trading would mainly take place on one or few RMs (concentration), rather than across a broad range of venues (fragmentation).

The ISD strategy was ‘overall’ bottom-up, because EU guidance came from CESR. A few years following the application of the ISD, CESR recommended that alternative trading systems needed to make pre- and post-trade data publicly available for any instrument traded on an RM ‘on a reasonable commercial basis’.4 CESR did not explain what the terms ‘reasonable commercial basis’ meant. The CESR terminology of a ‘reasonable commercial basis’ implied a balance between (a) data revenues for alternative trading systems (‘commercial basis’) and (b) adequate access for data users (‘reasonable’). CESR did not recommend to make the data available for free. It appears that CESR wanted to incentivise alternative trading systems in selling/licensing the data. Incentives for high quality data can deteriorate where data needs to be made available for free.5

During the ISD, RMs had a strong position in selling/licensing equity pre- and post-trade data. The ISD concentration-rule, as well as national rules requiring trades to be reported to an RM, had the effect of consolidating equity pre- and post-trade data on one or a few RMs. This not only gave RMs control over the market in trading, but also over the market in the data generated from these trades.6 RMs sold/licensed equity pre- and post-trade data to both (i) data vendors and (ii) directly to end-users, based on the data type and use. Many RMs made delayed data available free of charge (typically 15 minutes after publication). The consolidation of (equity) pre- and post-trade data was dominated by a few global data providers (data vendors). Data vendors applied their own fees in addition to the data fees of RMs.7

A main advantage of the bottom-up ISD data pricing strategy was the concentration of data on RMs. The limited degree of fragmentation resulted in a situation where a consolidated view of data could be achieved through buying data directly from an RM or, where the data was fragmented, from a consolidating RM and/or data supplier.8 Phrased differently, the demand for equity pre- and post-trade data was relatively low given the concentrated market setting. Buying data from multiple venues in order to obtain a consolidated view was not always needed, if needed at all.9 The concentrated market setting did not mean that data access under the ISD was perfect. Concerns were raised about the strong position of RMs in terms of data access. One large data supplier (i.e. Bloomberg) argued there was a ‘(…) monopoly control the individual exchanges (RMs) had over their market data’.10 Whilst RMs upheld a different view,11 the concerns raised by Bloomberg show the potential ISD market failure in having one/a few data suppliers (here being RMs) publishing most (equity) pre- and post-trade data.