Oxera Note – What’s the data on market data?

With the recent intense debate about the costs of market data in equity trading markets, this note summarises and clarifies the issues being raised, checks the main facts, and explains how to assess market data from a public policy perspective.  

The role of market data in equity trading

To understand the debate on market data, we first need to look at trade execution services. In 2007, MiFID I introduced competition in the market for equity trading services. Today, when a broker or investor wants to execute a trade order, it can choose from different venues, such as regulated markets (RMs), multilateral trading facilities (MTFs), dark pools, and systematic internalisers (SIs). As shown in an Oxera report for the European Commission in 2011, the introduction of competition resulted in more choice and reductions in trading fees over time.2 The role of price formation (the process by which information gets incorporated into prices) in the design of equity trading markets is well documented in the literature, but is sometimes overlooked in the debate on market data. As an information-gathering process, price formation ensures that market participants are sufficiently informed about the prices of the assets being traded such that they can make informed commercial decisions.