Toronto-based stock exchange operator Aequitas Innovations Inc. is launching a campaign against the high cost of market data in Canada that includes taking these concerns, and Toronto-based TMX Group Ltd.’s hold on the data business, to the Competition Bureau.
Aequitas announced on Tuesday that it’s taking a two-pronged approach to this issue. Aequitas is touting a proposed alternative that it says will dramatically cut data costs, as it says market data should cost less than half of what it does today. The firm has also filed a formal complaint with the Competition Bureau, requesting a federal investigation into TMX’s alleged anti-competitive practices.
Specifically, Aequitas claims that TMX “is using its dominant market position to maintain control over the pricing of market data in the Canadian capital markets.”
“In the area of market data, we believe TMX has remained, in effect, an unfettered monopoly, leveraging its market power to charge prohibitive and monopolistic prices,” says Jos Schmitt, president and CEO of Aequitas, in a statement. “Excessive market data fees have left Canadian investment dealers with no choice but to restrict the market data access given to their investment advisors and to their retail clients.”
As part of the campaign, Aequitas has also published a position paper and launched a website (www.standupforcompetition.com) calling on the investment industry to come together and attack the cost of market data. Aequitas’ paper argues that the cost of market data hurts not just firms, but investors and markets overall.
The Aequitas paper claims that the cost of data means that Canadian financial advisors and their retail clients “are only given access to a partial view of what is going on in the public markets. On average, they see less than 60% of all trading activity in Canadian public companies and considerably less of the trading activity for certain types of investment products, such as ETFs.”
The paper also says that this is contributing to negative perceptions about liquidity and transparency in Canadian markets, further impacting investor confidence and harming liquidity for listed companies and investment products.
In the past, the Investment Industry Association of Canada (IIAC) has also complained about the cost of market data while regulators have also acknowledged the concern. In 2014, the Canadian Securities Administrators (CSA) published proposed changes to market structure rules, which includes measures designed to improve transparency into the provision of market data.
See: CSA proposals create a flood of feedback
“This is a complex area that regulators globally have been considering for some time. The CSA came out with a proposal in 2014 and are hoping to finalize their regulatory response in 2016,” says Susan Greenglass, director of market regulation at the Ontario Securities Commission (OSC).
“In the meantime, the OSC has been using the methodology outlined in the CSA proposal to review and approve market data fees, and it has generally held or reduced data fees,” she adds.
Aequitas outlines a proposed alternative in its paper that would utilize dealers’ order and trade information to construct a consolidated market view, which the firm calls Aequitas CMV Connect. Implementing this solution, the paper says, would save the industry millions of dollars and would provide more accurate data to many investors. However, Aequitas claims that it’s prevented from launching this solution because of agreements between the investment dealers and TMX, which, it argues, is anti-competitive.
“Armed with data agreements that we believe are anti-competitive, TMX claims ownership over investment dealers’ private market data. The TMX can seek to prevent the deployment of Aequitas CMV Connect solution by refusing to allow investment dealers to contribute their private market data,” the Aequitas paper says. “The TMX is clinging to a monopolistic past that has no place in Canada’s capital markets in 2015.”
In turn, Aequitas is calling on the investment industry to join its effort to upend the current market data system: “Aequitas cannot challenge the TMX on access to private market data alone. This issue impactsthe entire industry and the industry needs to respond. It is time for all industry participants to make their voice heard. It is time for a commercial solution to challenge the TMX stranglehold on Canadian market data. It’s time to drive meaningful change.”
In response to Aequitas’ allegations, TMX issued a statement defending its market data business: “TMX operates within applicable laws and we are confident that we fulfil our role within the regulatory framework in Canada that ensures all investors, including retail, receive best execution. We charge competitively for market data, commensurate with the value of the products and services TMX provides to clients.”