17.III.3.1 Provide market data on the basis of costs and including a reasonable margin

The first obligation requires MiFID II Data Suppliers to base the price of market data on the cost of producing and disseminating such data. MiFID II notes that this may include a reasonable margin. MiFID II does not define the terms ‘producing’ and ‘disseminating’. Neither does MiFID II define the term ‘reasonable margin’.1 In this context, MiFID II only notes that MiFID II Data Suppliers are permitted to obtain a reasonable margin, ‘based on factors such as the operating profit margin, the return on costs, the return on operating assets and the return on capital’.2 In addition, MiFID II notes that the cost of producing and disseminating market data may include (a) an appropriate share of (b) joint costs for other services provided.3MiFID II does not define the term ‘appropriate share’, nor ‘joint costs’.

The foregoing results in two observations. First, MiFID II acknowledges that the production and dissemination of market data can involve so-called ‘joint costs’.4 As examined in chapter 14, joint costs refer to an economic concept in which the production of one product simultaneously involves the production of one or more other products.5 In the context of market data, joint costs mean that the production and dissemination of market data is linked to other services (e.g. trading services). Vice versa, joint costs for market data meant that the market data can only be produced and disseminated when other services (trading) takes place.6 The MiFID II acknowledgement of data production and dissemination costs incurring joint costs implies that specifying the exact costs is complex. This is because the production and dissemination costs can in the case of joint costs not be extracted as one individual product. This perspective is also apparent in the MiFID II-text. MiFID II does not specify exact costs. Instead, MiFID II specifies cost allocation and cost apportionment methodologies, leaving flexibility for the MiFID II Data Suppliers in the actual specification.7

The second observation is that the MiFID II-rules are principle-based. Several elements of the MiFID II-rules are not defined in further detail, such as the meaning of ‘producing’, ‘disseminating’, ‘reasonable margin’ and ‘appropriate share’. This leaves flexibility for the MiFID II Data Suppliers in interpreting the rules.8 Accordingly, the top-down elements introduced under MiFID II in terms of data pricing can be characterized as light touch.9 The MiFID II rules leave discretion for MiFID II Data Suppliers.10