Earlier this month, the Canadian Securities Administrators (CSA) released CSA Consultation Paper 21-403 Access to Real-Time Market Data, focusing on the costs of various types of access. As defined in the Consultation Paper, ‘real-time market data’ is order and trade information that is distributed immediately after an order has been entered, amended, or cancelled or a trade has been executed”. Issues have been raised about the cost of accessing data, particularly in Canada where there are multiple marketplaces, comprised of exchanges and alternative trading systems, competing for the same securities to trade. The Consultation Paper is of interest to anyone responsible for investment, order routing and execution decisions and sets out in a comprehensive manner the current regulatory regime, including the regulation of direct feeds and consolidated data, summarizes concerns that have been raised to date, and sets out potential initial and longer-term options under consideration by the CSA.
In its review, staff of the CSA considered:
- Changes in core marketplace revenues to identify changes and trends;
- Fees that impact the costs incurred by market participants that access and use real-time market data;
- The need to access Level 2 consolidated real-time market data [depth-of-book, i.e. information on all visible orders in the marketplace and all trades] versus Level 1 consolidated real-time market data from listing markets only [top-of-book information for each security, generally the last sale, the best bid and offer and the aggregated volume available for purchase or sale at those prices]; and
- The fees charged in Canada compared to those charged in the U.S. and other global markets.
The research indicated that fees differ across marketplaces for access and use of real-time market data and may include additional fees such as distribution fees if the data is redistributed, user display fees (or non-display fees), and charges associated with how participants connect to the data (e.g. co-location fees). The CSA’s research indicated that providing access to Level 2 data could as much as double the cost to consume data from all marketplaces when compared to only the listing markets.
Of note, the Consultation Paper stated that everyone interviewed by staff as part of their research indicated that the use of real-time market data should be tailored to a participant’s needs, and that not all participants needed access to the same data. However, most market participants were also of the view that they must acquire real-time market data from all marketplaces in order to comply with both their best execution obligations and the order protection rule.
The potential initial options focus on fair access to real-time market data for both direct marketplace and consolidated feeds. One suggestion is to impose standardized terminology to describe various products and how those products are accessed and enhance the transparency of any fee changes proposed by marketplaces by requiring them to publish proposed changes for public comment.
Longer-term options would instead propose an overhaul of the regulations applicable to accessing consolidated real-time market data. For example, consideration is being given to leveraging the current information processor model and imposing a cap on fees charged by marketplaces for marketplace order and trade data that is consumed through the consolidated products distributed by an enhanced information processor. The CSA is also contemplating introducing a new model for data consolidation through the use of a new administrative information processor that would be responsible for setting and managing the components of the model (including products, fees and revenue sharing).
A number of CSA considerations and areas for feedback are set out in the Consultation Paper, ranging from the need to enhance the transparency of any fee proposals related to real-time market data, any unintended consequences that could spring from the suggestions made, to how to incentivize market participants to provide consolidated real-time market data to all clients at reasonable prices.
Comments on the Consultation Paper are due by February 10, 2023. Any further regulatory proposals that result from the consultation will be published for further comment.
November 30, 2022