LSE to Revise Corp Action Fee Structure

LONDON—The London Stock Exchange is planning to introduce a new fee structure concerning its UK Corporate Action and Stock Situation Notice distribution licenses once a review process with their clients is finalized.

Discussions and rumours concerning the new LSE fees have fuelled serious debate among the data provider community. Industry participants say the corporate action fee was the source of a heated discussion at the recent Financial Information Services Division of the Software and Information Industry Association (SIIA/FISD) members meeting held in London last month. Tom Davin, vice-president of the SIIA/FISD, says the members group has no official position on the LSE's upcoming licensing fees.

According to Jonathan Bloch, managing director of Exchange Data International (EDI), the LSE sent him a memo outlining the new fee structure, which states that in a meeting held on June 14, 2005, the LSE "explained that from 1 April 2007 the existing £35,000 per annum UK Corporate Action and £45,000 Stock Situation Notice distribution licences that you currently subscribe to, will be replaced by a revised licensing structure, based upon the number of customers that distributors disseminate our data to."

Mark Husler, head of reference data at the London Stock Exchange, declines to comment on the Bloch memo, except to say any official correspondence with the exchange's market data clients will be on letter-headed paper and signed by a director.

A spokesperson for the LSE also declines to comment on the supposed upcoming fee structure, except to say: "We are working closely with our customers to finalize our pricing. It is not appropriate to comment at this time."

The memo goes on to say that the "revised corporate actions distribution licence will be priced at £5,000 per annum plus a banded change based on the number of customers that have access to our data across their product ranges, as declared by the distributor."

Bloch's memo also gives an example that if a "provider of global corporate actions information with a client base of 70 that incorporates/uses [LSE] data [they] would be required to pay £5,000 for the distribution licence and a royalty band of £35,000. Confirmation of these royalty bands will be provided shortly once finalised."

Official details around the exact structure of the revised fees remain unclear. However, a source at the exchange says the LSE has been gathering information within the industry about the new licensing structure over the past few months and the reaction has been "mixed".

Bloch says he disputes the notion that the LSE would even get a "mixed" reaction to its revised fee structure, arguing that he knew of no data vendor who was in favour of this move.

He also disputes the notion, mentioned in industry discussions, that the soon-to-be implemented licensing structure is not a new fee, but a revision of the existing fee. Comments have been made, by those close to the situation, that revised charges would be fairer than the existing flat fee and could even result in lower fees for smaller users.

"This is typical LSE spinning, in order to gouge more money out of market data vendors," he says. Bloch goes on to say that he is "sure" this upcoming license fee will lead to "larger fees for most people".

Calls made to other officials at several market data vendors revealed that they were in agreement with Bloch, however, they all declined to go on the record with comment.

Paul Kennedy, vice-president of product management at GoldenSource, who was at the FISD London meeting, says the LSE is not alone in looking for new revenue channels, and that other European exchanges have been hinting at introducing similar licensing structures. However, corporate actions prove problematic, says Kennedy, because unlike price discovery, corporate actions are owned by the issuers. "How can you charge for something you don't own?" he asks.

He adds that it is very difficult to track usage of corporate actions because "the majority of events end up in boxes in the back office updating the securities master file—there is no known mechanism to track that usage".

There is currently no evidence that the LSE has plans to track users of the exchange's corporate action data or enforce a system which produces an audit trail.

Corporate actions dissemination is based around the PIPs/SIPs paradigm, where the LSE acts as the primary information provider and the market data vendors act as the secondary information provider.

While the LSE does not have an official monopoly on UK corporate actions, industry insiders put the exchange's control of the UK market at 86 percent. However, officials at the LSE dispute this claim.

Market data contributes the biggest portion of the London Stock Exchange's revenues (Inside Market Data, May 1, 2006). Data revenues contributed 42 percent of the LSE's revenues in 2005, while the next highest grossing division, broker services, brought in 38 percent of the total.

This is in contrast to other exchanges such as Euronext, where information services brings in 9.73 percent, or the New York Stock Exchange, whose data services contribute 15.9 percent.