The World Federation of Exchanges ("WFE"), the global industry group for exchanges and CCPs, has today issued an update on the importance of valuing stock market data correctly. This expands the federation’s January 2019 statement where the WFE discussed some of the reasons why such data has economic value to some market participants. The WFE sets out the key questions and considerations within the framework of the current policy debate for a coherent approach to pricing.
As today’s statement underlines, stock-market data exists only because exchanges create it and has particular value:
a) because market participants can profit from using it; and
b) because of the care that exchanges take in creating it, consistent with their role in society and the economy.
The WFE note specifies the value-enhancing activities that stock exchanges undertake as part of their mission that creates the market data. The WFE challenges the notion that regulation should engineer any value transfer from those who create the product; to those in the financial markets who wish to exploit it for their own commercial ends.
In particular, the WFE includes a brief discussion of why each of the following aspects of an exchange’s activity increases the value of the data that exchanges create:
1. Legal organisation and governance;
2. Regulatory framework;
3. Equal treatment for market access;
4. Listing and admission to trading;
6. Technical infrastructure, including security and cyber resilience;
7. Supervision, surveillance and enforcement; and
8. Dispute resolution and complaint handling.
The statement discusses how an exchange prices data as a ‘joint product’ with trade execution. In other words, the data product is integral to the totality of what the exchange does, namely organising markets that maximise open and fair participation.
Nandini Sukumar, Chief Executive Officer, WFE said: “There needs to be an open, honest and public debate. At present this is lacking. This matters - not just in terms of correctly representing the economics of stock-market data - but also because there is a wider issue at stake: ensuring that capital markets are as vibrant and inclusive as possible. We should recognise the benefits that exchanges uniquely bring to society. In that context, distorting the market for share-price data would be unjustified and damaging.”