Rising data fees to offset declining trading revenue burden market participants with surging costs Research by Market Structure Partners(MSP) reveals that European stock exchanges are increasingly turning to market data sales to compensate for adverse market conditions that should have resulted in a downturn in equity market revenues such as declining equity trading volumes, shrinking market share, and a diminishing customer base. This shift has dramatically driven up the cost of equity market data, which is essential for issuers, investors, and market intermediaries to conduct their daily business. The research, commissioned by a coalition of trade and other industry associations presents a critical analysis of how the equity market data business and fee structures of Europe’s largest exchanges (Deutsche Börse, Euronext, LSEG, Nasdaq Nordics and SIX Swiss Exchange Ltd) have evolved and how it stifles growth and innovation. Niki Beattie, CEO of MSPsaid “This Study shows the ease with which exchanges can rely on market data income to supplement what should otherwise be a natural decline in revenue and suggests that, as a result, market growth has become a secondary objective.European policymakers with competitiveness and innovation agendas should rigorously challenge the current separation of trading and data revenues at all trading venues.” Total equity market revenues consist of trading revenue and market data revenue combined. However, the market data pricing does not appear to align with the trading activity it underpins. Despite these adverse conditions, EU regulatory disclosures from Europe’s largest exchanges show that they appear able to sustain overall equity market revenues by increasing the portion that they generate from market data as trading revenues decrease. For example: Transacted value on Euronext’s equity markets reduced by 17% between 2020 and 2023. However, the total equity market revenue only declined by 0.5%. This is because market data revenues as a proportion of overall revenue increased from 11% to 19%. Transacted value on at Deutsche Börse’s equity markets reduced by 29% between 2020 and 2023. However, equity market revenue only declined 12%. This is because market data revenues as a proportion of overall revenue increased from 21% to 31%.Transacted value on Nasdaq Nordics’ equity markets reduced by 26.9% between 2021 and 2023. However, the total equity market revenue only declined by 8.8%. This is because market data revenues increased from 19% to 23%. LSEG only has to make regulatory disclosures for its EU subsidiary, Turquoise. Trading turnover on Turquoise significantly reduced between 2020 and 2022, some of which can be attributed to its sale of Borsa Italiana in 2021. Nevertheless, during the same period, market data as a percentage of overall equity revenue rose from 10.5% to 27%. These increases in market data revenue have occurred even though there are no specific costs for producing market data and the costs of running a trading platform, such as software, hardware, energy prices and other factors are stable or declining. Additionally, exchanges in the UK and Europe have run the same trading technology for more than a decade and there is no evidence of any significant expenditure in their accounts. Costs for disseminating data across the market are borne by third parties. The research argues that, exchanges have managed to maintain revenues by charging higher prices to fewer participants for more limited data. This appears to have been achieved through the introduction of arbitrary and complex fee structures that are based on multiple factors including: user type (broker/agent), competitive status, professional versus retail users, data consumption method (human use on display terminals versus machine use of non-display data), and number of devices that may be able to see the data. Restrictive clauses also limit data use to exchanges' predefined purposes, making it hard for innovators to use data without taking on indeterminate financial risk. As a result, every firm and user has a different cost profile and, if an exchange lowers prices for one set of customers, it may offset the revenue loss by raising prices for other customers. The pricing model has led to extraordinary price increases, particularly as exchanges appear to seek to stem losses that arise that result from their customers’ increasing automation. Most dramatically, under certain conditions, it is now 35 to 97 times more expensive in 2024 for a machine to use data compared to the cost for a human to use the same data for the same activities in 2017. Additionally, according to the research, firms that compete with traditional stock exchanges, either as trading venues or index providers are amongst those that have seen the most dramatic price increases. Competing trading platforms have seen costs rise by up to 481% between 2017 and 2024, while proprietary index creators that compete with exchange owned indices experienced cost rises between 97% and 170% across three exchanges over the same period. Since the introduction of MiFID I in 2007, these exchanges have collectively earned at least £5.67 billion from market data, justifying their pricing as essential for the maintenance of fair and orderly markets but other competing trading venues have managed to become profitable and process similar volumes in a fair and orderly manner without the same reliance on market data revenues. If market data costs were directly correlated to market share, the study finds that exchanges, leveraging their incumbent status, could have generated up to £4.93 billion (€5.83 billion) in surplus revenue from market data fees since 2008. Alternatively, they could be earning up to 7.64 times more than competitors for processing similar volumes and market share. The research raises critical questions about exchanges' role in regulated markets including: whether they are truly serving the equity market community, whether they are investing in equity market development and whether regulation has kept pace with the evolving business models and interests of exchanges where equity markets are now a minority business. Ultimately, the Study argues that market data's value must align directly with trading activity. It calls for regulation to ensure data is treated as a by-product of trading by all trading venues rather than a separate revenue stream. Failing that, legislative intervention should redefine all trading venues’ objectives to ensure they support market growth as their primary objective explicitly. Once the transparency of exchange data fees is improved, it will be easier to understand the pricing of data dissemination imposed by third party data vendors within the value chain. "This study reveals a concerning trend in European equity markets," saidMike Bellaro, CEO of Plato Partnership. "When essential market data becomes disproportionately expensive, it creates barriers to entry and stifles the very innovation that policymakers are trying to encourage. This is particularly relevant as the UK and European Union seek to enhance their market competitiveness." Adam Farkas, CEO of AFME, said: “Accessible market data is a critical component of healthy and well-functioning capital markets. Irrespective of the asset class, data empowers and allows all market participants to make informed decisions when allocating capital which in turn, supports a competitive and growing capital market. We thank Market Structure Partners for undertaking this critical research which shows that the much-needed growth in Europe may be undermined if attention is not paid to these concerning developments”. Thomas Richter, CEOof the German Investment Funds Association,BVI, said: “Asset managersare legally forced to usestockmarketprices, benchmarks, credit ratings, and other datafrom third-party providers.Because of the existing oligopolymarket structures with only a few providers per segment, there is a case for competition law authorities.We call for an EU data vendor act that regulates the commercial behaviour of these entities.Because if we don't, the already considerable cost pressure in thefundindustry will intensify even further – also to the disadvantage of the consumers.” Tanguy van de Werve, Director General of EFAMA, said: “Competitiveness is high on the policy agenda, including boosting the competitiveness of EU capital markets. Addressing the harmful impact of the oligopoly at the heart of market data access would lower trading costs, encourage new market entrants, and promote innovation. EU capital markets are underperforming their global peers, a trend that has only solidified over the last few years. Tackling high market data costs should be an obvious choice for policymakers looking to reinvigorate European capital markets.” Piebe Teeboom, Secretary General of the FIA EPTAsaid, “The MSP report evidences the ongoing increase in the cost of market data over recent years. This adds significant cost to participating in European financial markets, at a time when Europe is focussed on finding ways of boosting growth and competitiveness. In the interests of ensuring Europe remains an attractive destination for capital allocation, we encourage policy-makers and regulators to consider how the report’s findings impact these objectives.”

This paper looks to provide an overview of the development and objectives of the T2S project in Europe and to assess its effectiveness with regards to the enhancement of settlement efficiency, harmonisation and cost reduction in post trade processes, along with fostering cross-border investments within the European Union. TARGET2-Securities (T2S) is a single pan-European technical platform which allows for the settlement of securities transactions in central bank money, in real-time, for the same cost, and following the same harmonised procedures, even on settlement transactions involving different CSDs. T2S uses an integrated settlement model, whereby the securities and cash accounts used for settlement are located on the T2S platform, ensuring delivery-versus-payment (DvP) settlement by effecting simultaneous bookings on the securities accounts (provided by central securities depositories) and on the central bank money cash accounts (provided by central banks).

Top Hurdles to DORA implementation The Association for Financial Markets in Europe (AFME), has released its latest publication on DORA (the EU’s Digital Operational Resilience Act). This milestone regulation on risk management for financial entities is coming into effect on the 17th January 2025. With various Level 2 instruments not due to be finalised until late in 2024, industry is under severe pressure in ensuring that the operational uplifts are securely in place. This paper sets out the scale of the challenge for banks, highlighting the 5 top issues which are currently being grappled with, as part of preparing for DORA. It is clear that a proportionate and risk-based approach to enforcement and supervision will be needed, certainly during the initial phases of implementation. The report also shows that in many instances, banks are having to establish new systems and frameworks, often through manually intensive processes. This can be seen for example with the incoming Registers of Information, despite the overlap with existing outsourcing registers. At times, the ability to finalise such remediations depends on the willingness of third-party providers, who are themselves out of scope of DORA. Looking forward, it is critical that the ESAs not only finalise as soon as possible the remaining regulatory standards, but proactively plan ahead and set out a timeframe for rationalising the regulatory burden on firms, in particular removing the incoming duplication with existing EBA requirements. For further information please contact the Tech&Ops team.

The Association for Financial Markets in Europe (AFME), has today published the first edition of the ‘Capital Markets in the UK – Key Performance Indicators report’, tracking the progress of the United Kingdom’s capital markets against nine key performance indicators. This report is an extension of the sixth edition of AFME’s annual Capital Markets Union: Key Performance Indicators report, which tracks the development of the European capital markets ecosystem. The report shows a mixed picture for UK capital markets. Key strengths include; levels of corporate and SMEs funding, the continuance of the UK as a global hub for FX and interest rate derivatives, and a vibrant FinTech sector, with the UK leading across indicators such as the growth in the number of unicorns, innovation, and funding. However, despite these strengths, there are several weaker indicators. For instance, the decline in new equity listings (IPOs) is striking, with a near inactive market across 2023. This is coupled with a reduction in the number of foreign listed companies on UK markets. Looking forward, there are signs that the UK is well placed to expand and grow its domestic markets, with a large pool of underutilised capital, a high number of tech-startups, and the expansion and still further room for growth across key ESG metrics such as the issuance of green bonds. Further growth will be needed across these areas if the UK is to meet its climate goals and the competitiveness challenges that are faced by all economies across Europe. The next edition of this report, with H1 2024 data will be published in November 2024 and annual thereafter.

Download the German version of the reporthere. The Association for Financial Markets in Europe (AFME) has today published a new report on the role of capital markets in Germany.This study, published in partnership with zeb Consulting, shows the potential that stronger financing via capital markets offers for Germany. Among the key findings, the report shows that for decarbonisation efforts alone, the bar is set very high in Germany. The German government has committed to reducing greenhouse gas emissions in Germany by at least 65% by 2030, compared to 1990 levels, under the Climate Protection Act. Key findings: Germany is lagging behind other countrieswith respect to capital markets financing. German companies rely almost exclusively on bank loanswhile households still avoid capital markets for investing and retirement provision. There is anannual funding gap of EUR 175 billionneeded to achieve the German government’s ambitious climate targets by 2030. There are increasing signsviews are changingwith respect to the role of the capital markets in the German financial system. In Germany, the proportion ofcapital marketinstrumentsis significantly lowerthan in other countries, however, anequity culture is growing among young investorsin Germany. TheGerman statutory pay-as-you-go pension system is beginning to falterin the face of an ageing society. To address this challenge, a pension scheme, partly based on capital markets funding, will be essential in the future. Capital markets could help to finance future investments in Germany, including via new sources of financing, such as securitisations.

This report is part of the European Benchmarking Exercise, a market-led initiative organised by AFME, EDW and TSI, and contains results from H1–2023. Its purpose is to further enhance the quality and usefulness of disclosure in the private cash securitisation market, both ABCP and non-ABCP, in the EU and the UK, in order to assist market participants and reassure supervisors. CLOs, synthetic securitisations and public ABS bonds are not in scope. It provides aggregated transaction-level data gathered from 12 banks (BayernLB, BNP Paribas, Commerzbank, Credit Agricole, DZ Bank, Helaba, HSBC, ING, LBBW, Natixis, RBI and UniCredit) across 6 countries (Austria, France, Germany, Italy, Netherlands, and the UK) on a voluntary basis. The report shows that non-public securitisation markets are an important source of financing for the real economy. The overall private securitisation market is estimated at least €209bn of total commitments, with the exercise-related dataset covering €78bn of those commitments. Private securitisations backed by trade receivables and auto loans or leasing make up around 72% of the market, of which 34% and 87% respectively are funded through syndicated transactions. This report is the fifth in a series of such reports to be published regularly over time.

The Association for Financial Markets in Europe (AFME) is setting out its initial reflections and recommendations for banking and capital markets policy ahead of the next EU legislative cycle. As the 2019-2024 EU legislative cycle concludes, new and pressing challenges have emerged: strained public finances, demographic shifts and annual investment transition needs of EUR 700 billion. This context underscores the importance of developing open, deep, and integrated capital markets to support EU corporates and citizens. Benefits of Integrated Markets: For corporates ◾ Allocation of capital to finance innovation & transformation ◾ Access to larger pools of capital & increased liquidity ◾ Cheaper financing as a result ◾ Greater visibility for smaller, high-growth firms For investors ◾ Diversification through broader range of investment options ◾ Increased liquidity contributes to lower costs and higher returns

The Association for Financial Markets in Europe (AFME) has today published a new report 'Sustainable Finance in the EU: Priorities to unlock financing and investment'. The paper outlines AFME members’ views and recommendations on the functioning of the current EU sustainable finance framework and the implementation challenges that banks face in applying it to financing companies. The paper then highlights AFME’s constructive recommendations for policymakers, including how policymakers and regulators can further enable financial institutions in providing financing in support of climate, environmental and social goals. The report sets out five priority recommendations to address identified challenges: Maintain focus on establishing roadmaps, reducing regulatory barriers for the deployment of sustainable investment projects and providing incentives for the real economy transition; Ensure that the regulatory framework is achieving its goals, is coherent and usable in practice to promote and support sustainable finance (including transition finance); Provide a stable regulatory framework with time for implementation and review how it is working in practice, with targeted guidance/changes introduced where needed in consultation with market participants; Ensure that regulation is promoting investment and does not adversely impact the competitiveness of financial institutions or companies operating in the EU and internationally; and Enhance international coordination and improve international interoperability with other key jurisdictions. Alongside recommendations on improving the functioning of the EU regulatory framework, the report also sets out AFME’s recommendations in three further important areas which we see as priorities for EU policymakers: Facilitating transition finance; Developing carbon markets; and Scaling finance for nature.

Press releaseavailable inEnglish, French, German, Italian, Spanish Individual country analysis available for France, Germany, Italy, Spain The Association for Financial Markets in Europe (AFME), in collaboration with eleven other European and international organisations, has today published the sixth edition of the'Capital Markets Union – Key Performance Indicators'report, tracking the progress of Europe’s capital markets against nine key performance indicators. This year’s report shows a mixed picture, revealing no discernible medium-term advancement on the CMU key performance indicators. This edition also coincides with the 30th anniversary of the Single Market. Here too, the data points show minimal change in the development of the EU's capital markets on a global scale. Adam Farkas, Chief Executive of AFME, said:“All the planned measures from the CMU Action Plan of 2020 have now been delivered by the Commission and EU leaders earlier this year committed to finalising negotiations on any open CMU issues before the next EU elections. However, certain goals, such as rebalancing the EU's funding sources toward more market-based financing, channelling individual savings into productive investments, and integrating national capital markets to create a unified EU market have not yet materialised to any meaningful degree. “It is clear that the financing structure of the EU economy will need to adapt, and at pace, if it is to support the EU’s significant and transformative investment needs, including the fast-approaching climate goals of 2030, as well as its demographic and competitiveness challenges. “Ahead of the next legislative cycle commencing, a strategic discussion on the best way forward will take place within the Eurogroup to set out recommendations for the next Commission. These recommendations are highly anticipated by the capital markets industry. The growth of an integrated capital market for Europe must continue to be a key priority if the European Union is to achieve its dual goals of sustainable and digital economic transformation.”

The Association for Financial Markets in Europe (AFME) and Deloitte have today published a new report entitled: ‘Improving the Settlement EfficiencyLandscape in Europe’. The report analyses the causes of settlement fails in the EU securities market and gives recommendations to improve the efficiency of post trade processes. In Europe there is a clear lack of high-quality, granular, public data on settlement fail rates and reasons, which has proved a barrier to assessing the current environment. This report therefore uses different data sources to track inefficiencies across the post-trade lifecycle. AFME has developed a set of recommendations to enable and promote increased settlement efficiency, to improve the current operating environment and help prepare the ground for any potential future transition to a shorter T+1 settlement cycle. AFME recommendations: Reduce exceptions Expedite exception resolution Optimise settlement of available inventory