Bourse’s data drive under spotlight

Data is not the new crude oil. Think of data as water, precious yet imperfectly valued. Big tech groups such as Facebook grab the headlines for aggregating so much of it. Yet those purveying financial markets information are amassing equivalent clout.

Regulators worry that investors are being ripped off. Britain’s Financial Conduct Authority (FCA) launched a review on Monday. The probe should prompt heartsearching at the London Stock Exchange Group.

The $27bn proposed purchase of Refinitiv is the latest flourish. It should add a raft of analytics and trading statistics to an already strong hand in indices and equity prices. The transaction is already the subject of automatic antitrust scrutiny.

One can see why exchanges like the data business. Revenues are high and rising, especially from the FTSE Russell indices business. This should benefit from the unstoppable growth of passive investment. In contrast, commissions from securities trading are dropping. Combining data groups can bring cost benefits too. The LSE says it can save more than £100m a year on technology alone by combining with Refinitiv.

Brussels worries that its regulations, such as the Mifid II assault on equity research, did not reduce data prices as much as expected. Watchdogs expect these to reflect the cost of production plus a “reasonable” margin. LSE’s ebitda (earnings before interest, taxes, depreciation and amortisation) margins are anything but reasonable: 56% in the past 12 months, only a tad down on 2016’s 59%.

Financial data pours forth from the markets every second. Fewer and fewer firms control the spigots. If the FCA has questioned the high margins of asset managers — forcing them to declare their research costs — then it is right to take a tough stance on data providers with sometimes twice the profitability. /London, March 10

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