CSA sets path to market data reforms

As part of a broader effort to address long-standing industry concerns about the cost of market data, the Canadian Securities Administrators (CSA) are planning to consult on possibly improving access to real-time market data for retail investors and their advisors.

In a staff notice, the CSA detailed the results of its latest consultation on the provision of real-time market data, which has become a growing source of revenue for trading venues and a rising source of irritation to the industry.

The securities industry has long complained that the cost of market data is too high, and that trading venues can take advantage of a regulatory regime that requires firms to purchase data to meet their best-execution obligations.

Last fall the CSA launched a consultation that proposed a handful of short-term options for addressing these concerns — such as improving fee transparency — and a couple of longer-term ideas, such as potentially developing a new model for consolidating and distributing market data.

The CSA now says it is shelving the longer-term reforms, given lack of consensus on the proper approach and concerns about the negative consequences that could flow from more fundamental reforms.

“Ultimately, it was not clear to the CSA that the costs involved in pursuing either of these options justified the benefits at this time,” the regulators said in their notice.

Instead, the regulators are pursuing several of the shorter-term options.

To start, the Ontario Securities Commission is enhancing transparency around market data fees by requiring the trading venues that it regulates to publish proposed changes to their fee models for public comment.

For proposed changes that “may have a significant impact” on the capital markets, “marketplaces might also be required to publish a summary of public comments and responses,” the regulators said.

This new approach will be reviewed after 18 months to determine whether it’s improving fee transparency as intended.

The Alberta Securities Commission and the British Columbia Securities Commission are also expected to review whether to adopt a similar approach for the TSX Venture Exchange.

Additionally, the CSA said it will establish a series of industry committees to study other measures, including reforms to improve access to consolidated data for retail investors and advisors.

“[W]e have determined that regulatory action to improve access to consolidated [real-time market data] for retail investors and their advisers should be further explored,” the regulators said.

“As a result, we are proposing to undertake a consultation to determine whether the introduction of consolidated [real-time market data] products for retail investors and their advisers will benefit the Canadian capital markets,” they said.

Among other things, the planned committee on retail access will look at a possible framework to provide incentives for, or remove barriers to, dealers offering real-time market data to retail investors and their advisors.

The CSA also plans to form a couple of other industry committees — one to review the methodology for assessing whether data fees comply with regulators’ fair access requirements, and another to look at standardizing the terminology in consolidated data agreements.

These committees, which will be chaired by consultants hired by the CSA, will report back to regulators with possible policy recommendations.

The committee to analyze data fee methodology will be formed first. Among other things, it will look at whether the current methodology is an appropriate tool for assessing data fees, and possible changes to improve the fairness of the methodology.

The regulators’ staff will also be carrying out their own review of the methodology from a regulatory perspective, with a view to determining whether to continue using the existing methodology and whether to make any changes.

The CSA said the review of fee methodology will take place in the next three to six months, with the committee on retail access taking place after that work is done.

The committee on standardizing terminology will likely follow the completion of the retail committee’s work, although those two projects may take place in tandem, the regulators said.