14.V Conclusion

The conceptual framework examined three concepts that are relevant for EU equity pre- and post-trade transparency regulation with regard to the price of equity pre- and post-trade data. The first concept constitutes the price variables of equity pre- and post-trade data. Three main variables are (a) the head count, (b) use restrictions, and (c) the type of equity data product. ‘Head count’ refers to how the data use and user type is apparent in the fee structure (e.g. per user ID or per terminal). ‘Use restrictions’ are restrictions on how the supplied equity data product can be used, for example, whether or not it can be redistributed or complemented with statistics. The ‘type of equity data product’ includes factors such as the depth, latency, and degree of consolidation. These three data rate variables result in different fee structures that apply between the data provider and data user.

The second concept is when prices for equity pre- and post-trade data are reasonable. Four aspects are relevant, namely: (1) the costs of producing and disseminating equity pre- and post-trade data, (2) the profits a data supplier can make, (3) the extent of price discrimination, and (4) ownership of equity pre- and post-trade data. It is difficult to assess what the production and dissemination costs of equity data products are, among other things, due to the debate on joint- versus by-products. The capability of data suppliers to make profits depends on the perspective one takes, simply put a free market versus those arguing that the ‘free market’ relies on false preconditions, such as a lack of actual competition. Related to the profits of a data supplier is price discrimination. Price discrimination is not a problem by itself. However, economic and fairness considerations can make price discrimination problematic, for example, where there is insufficient competition and/or the data product is essential. There is also an intellectual property discussion concerning equity pre- and post-trade data. Although dating back for decades, the debate is gaining new momentum due to the increase in demand for equity pre- and post-trade data in the EU equity markets. Technological development and the fragmentation of the EU equity markets have increased the value of equity pre- and post-trade data.

The third and final concept is whether to use a bottom-up or top-down approach or a combination of both (hybrid) to achieve ‘reasonable’ equity pre- and post-trade data prices. Relying on market forces (bottom-up) has the advantage of competition, but might also be insufficient in light of fragmentation and a potential lack of comparable equity pre- and post-trade data products. As will be shown below, the EU has from the ISD to MiFID II shifted towards a more top-down approach for the regulation of data costs (i.e. more EU regulation). Several aspects of data costs (data prices) are regulated on the EU level. While doing so, the EU intends to leave room for market forces (bottom-up elements). The EU approach has in effect become hybrid in nature. The EU regime might become more top-down after the MiFID II Review.