Data Disruption?

London-based consultant and co-chair of FIX Trading Community's Reference Data Subgroup Chris Pickles is apparently the first to have noticed a potential implication for commercial data vendor models in the reference data reporting and republication requirements for the Markets in Financial Instruments Regulation (MiFIR) published by the European Securities and Markets Authority (ESMA).

At Pickles' suggestion, in January, industry forum the Financial Information Services Association (FISD) held a meeting of interested parties to address republication of reference data, the issue he discovered by examining the text of MiFIR itself. Article 27 states that trading services must supply National Competent Authorities (NCAs) with reference data for transaction reporting. The regulation then states that the NCAs must transmit this data "without delay to ESMA, which shall publish them immediately on its website. ESMA shall give competent authorities access to those reference data."

Says Pickles: "Most people who read that have skimmed through it and have said, ‘Oh, ESMA is going to publish the data on its website so that the NCAs can access it. Well, that seems OK because this is a closed user group.'"

But the full stop after "website" implies something rather different, he says. "That little full stop means ESMA is going to publish this on its website, publicly. NCAs will be able to access it, but not only NCAs."

Sassan Danesh, managing partner at ETrading Software, agrees that there could be an issue. "The capital markets community gets almost all reference data associated with financial instruments from data vendors such as Bloomberg, FactSet, Thomson Reuters, and so on. Vendors have a commercial model: there are licenses associated with that data, and typically there is some kind of restriction on republication.

"Now ESMA has requested that trading venues and systematic internalizers provide the reference data on financial instruments to either the NCAs or to ESMA directly," Danesh adds. "That in itself is not a big deal. Ideally, the vendors' license terms would at least allow that data to be used for regulatory reporting.

"The key change is that ESMA has stated that it will then place the information on its public website. At that point the information becomes free for anyone to take and use."

Pickles says he has spoken to ESMA about the issue but has not received a conclusive response. ESMA did not respond to Inside Reference Data's requests for comment.

Are Data Vendors Affected?

Data vendors say the services they offer extend far beyond merely providing data so this issue isn't hugely troubling to them.

Anastasia Dokuchaeva, London-based director of global regulatory solutions at FactSet, attended the FISD meeting. She tells Inside Reference Data that she isn't "pulling out her hair" over the issue just yet.

"It didn't look like there was a lot of market data that had to be exposed. It was very much proprietary reference data around transactions that somebody like FactSet wouldn't necessarily collect or consider because it's not data that we create."

FactSet's data is publicly available anyway, she says. The value the company provides lies in its use as an aggregator. "Fundamentals is a great example. We get the data from financial statements. We go to the filings and extract that information. The value is that we are a one-stop shop that does the collection and aggregation."

Tim Lind, Boston-based global head of financial regulatory solutions at Thomson Reuters, agrees that ESMA's republication of the data won't somehow disrupt the existing commercial environment.

First, the data to be reported isn't necessarily new and there is only a "modest" amount of it, says Lind.

"ESMA will collect, centralize and create the golden source on descriptive information on all these swaps, money markets, forex, and so on, and will make them publicly available.

"Outside of equity and standardized fixed income records, that is where most of the reference data vendors focus. The new asset classes that will be recorded by the venues are more about pricing information."

Firms using services like Thomson Reuters' will not derive much value from ESMA's data, adds Lind. "Every financial entity has a relationship with a commercial data provider. They have built interfaces to map information from a vendor. They don't want to go to the individual sources of data and collate and map that information," he says.

The republished data could represent an opportunity for vendors to offer more market color and transparency, according to Lind. "The market data vendors will use this data obtained through MiFID reporting to create value-added services, such as evaluated pricing," he says, noting that larger clients of data vendors are concerned with the whole world, not just Europe. "The scope of the data that ESMA would collect is not a competitive alternative to a Thomson Reuters or our competitors, which pride themselves on coverage across markets," he adds.