The UK’s Financial Conduct Authority announced it will launch two market studies “and gather further information” to investigate access to wholesale data in financial markets amid concerns of “limited competition” for benchmarks, indices and credit ratings.
The sector is dominated by providers including Moody’s, S&P and Fitch. The ratings of these agencies are used by investors to help measure the risk of investing in securities.
“The FCA will launch two market studies and gather further information to investigate access to wholesale data,” said the FCA.
“In response to a call for input, the FCA heard concerns that limited competition in the markets for benchmarks and indices, credit ratings and trading data may increase costs for investors and affect investment choices.
“In a market study to begin this summer, the FCA will look into concerns that complex contracts for benchmarks and indices prevent switching to cheaper, better quality or more innovative alternative providers.
“Benchmarks and indices are used by market participants like asset managers, banks and clearing houses to track and evaluate asset prices and investment performance.”
The FCA said that by the end of the year, it will launch a second market study to assess whether high charges for access to credit ratings data is “adding costs to investors and limiting new market entrants.”
It said: “Access to high-quality credit ratings helps investment managers assess financial risk, influencing which investments they make.”
The FCA said it will also begin gathering further information on competition in the market for wholesale trading data. Providers in this industry include Bloomberg, Refinitiv and London Stock Exchange Group.
Trading data include information on how many financial instruments are being traded, what people are prepared to pay for them and the price at which trades are executed.
“These data are supplied by venues – like stock exchanges – where these financial instruments are bought and sold,” said the FCA.
“Concerns have been raised that limited competition may increase costs and have an impact on the types of assets that investment managers buy and sell.
“Access to wholesale data allows market participants who manage investments to identify and evaluate investment opportunities.
“A lack of competition could affect the quality of wholesale data and mean increased costs for investors, including, ultimately, pension savers.
“Effective competition is central to ensuring markets work well and is at the heart of the FCA’s wholesale strategy.
“To identify potential issues in the markets it regulates, the FCA can use one of its deepest analytical tools – the market study – to look more closely into these markets.”
Sheldon Mills, Executive Director, Consumers and Competition at the FCA, said: “Access to wholesale data is really important for those who want to make investment decisions.
“Without it, they lack the information they need to make properly informed choices.
“Our Call for Input and planned market studies are intended to ensure that competition is working well, that information is available to market participants that want it, and that innovation is keeping up with market developments.”