Substantive Research warns of lack of transparency on Market Data pricing market

Rick Steves

Substantive Research has warned the industry of a pervasive lack of transparency on the Market Data pricing market, with a specific focus on opaque pricing across indices, ratings, research and analytics markets, terminals, and pricing and reference data.

The research and data discovery and spend analytics provider for the buy-side pointed to institutions paying up to 10 times more than peers on pricing and reference data.

For Index Data, some institutions are paying over 13 times (1300%) more than peers, and for Ratings Data, some institutions are paying over 3 times more than peers, the firm stated.

Large variance in market data pricing between wholesale market data buyers

Substantive Research’s June 2022 study identified a large variance in market data pricing between wholesale market data buyers with similar use cases, which showed that some institutions are paying more than twice as much as their peers for a single index from the same provider and almost five times more for reporting licenses.

These inconsistencies continue throughout the Market Data industry’s pricing, posing significant challenges for Heads of Market Data globally, who need to navigate a lack of transparency around pricing and the availability of viable market data alternatives.

Mike Carrodus, CEO of Substantive Research, said: “The pricing in these vital procurements is traditionally opaque and difficult to understand in context with peer procurement spend. Some providers are more inconsistent in what they charge than others, which is important to understand as this will change consumers’ strategy and approach in each case.”

“Many incumbent vendors have been extremely successful in becoming ‘have-to-have’ through investment in their products, technology and marketing capabilities, so their leverage in pricing can be seen as a natural reward for these efforts. However, within a volatile market climate, procurers are more focused than ever on ensuring efficiency in their market data budgets, creating an adversarial negotiation dynamic which is exacerbated in tough times”, Carrodus continued.

“Greater transparency can only ensure the right balance between providing the right incentives for vendors, while also allowing consumers to optimise their budgets. We’re proud to be able to respond to our customer’s wishes in this way and use our proven methodologies to help them understand the truth within these opaque pricing frameworks.”

Krystal Somaza, Head of Data & Analytics at Substantive Research, said, “Gaining a clear perspective of pricing in these markets has always been a challenge, given every firm’s differences in terms of its size, structure and business model, and their specific and unique use cases with each vendor. But transparency is key for procurers, where an incumbent provider base has ensured formidable pricing power in a market with limited alternatives available to buyers.”

Pricing and Reference, Ratings, Index, R&A

Substantive Research has found a number of pricing inconsistencies for the last 12 months, including:

Pricing and Reference Data market: Some providers are charging certain clients over ten times (1075%) more than other clients for similar products and services

Ratings market: The lowest to highest pricing for similar ratings products show that some providers are charging certain clients over three times more than other clients for similar products and services; The range of increases applied with inflation as the driver is also broad here, having grown in 2021 and stabilised in 2022

Index market: The lowest to highest pricing for similar developed market index products show that some providers are charging certain clients 13 times (1300%) more than other clients for similar products and services; Inflation-driven increases in pricing are applied inconsistently – and the inconsistency of percentage increases applied due to inflation become greater through 2020, 2021 and 2022

Research & Analytics market: The lowest to highest pricing for similar terminal products show that some providers are charging certain clients more than three and a half times more than other clients for similar products and services; A minority of providers in this area are entirely consistent with their pricing, applying a standardised charging model in contrast to the rest of the market

Substantive Research argued in favor of best practices in negotiations. “This may not drive huge price decreases given the power dynamics in this market, but is proven to mitigate the level of increases year-on-year per provider and therefore impact materially across the entire budget.”

Even when clients’ structures, needs and requirements are all accounted for, prices still vary significantly.

The Substantive Research insights are based on its Market Data Spend Analytics tool, an “apples-to-apples” Market Data Spend Analytics service for asset managers, wealth managers and hedge funds.

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