New research from Burton-Taylor provides a fresh look at how U.S. exchanges earn market data revenues, detailing revenues by asset and product type including equity, options, futures, fixed income and other.  The report analyzes revenue from both shared tape revenues as well as proprietary products and feeds, with a deep dive into revenues in the fiercely debated equity market data segment, examining how revenues are experiencing slower and slower growth rates. 

Amidst an increasingly data-centric backdrop it makes sense that exchanges would expand their information services capabilities, expanding the breadth of products and services they bring to market.  In its new report, Information Services Strategies of U.S. Exchange Holding Companies, B-T segmented each U.S. exchange’s  Information Services business revenues for the 2015 to 2019 period, analyzing revenue trends and growth strategies to provide an in-depth view of the market data landscape and provide greater insight into the Information Services strategies of exchanges.

The Equity Market Data Debate

As the debate surrounding equity market data rages on, Burton-Taylor has drilled into how U.S. exchanges earn market data revenues, including an analysis of how much exchanges earn from both their proprietary products as well as shared tape across multiple product and asset segments.  One conclusion which may surprise industry observers is that exchanges are diversifying their revenues away from market data products and are increasingly focusing on the index and analytics space.  U.S. exchange revenues earned from market data and feeds are at an historical low, accounting for 52.9% of total information services business revenues (market data, analytics and index products) in 2019, as compared to 77.4% in 2014.

Despite these trends, the perception of rising equity data costs has led the financial industry to deride the exchanges on pricing policies, attracting the attention of regulators seeking to address market complaints on the rising cost of data.  But examining recent revenue trends for U.S. exchanges tells a different story.

Shifting Business Models of Exchanges Attracts SEC attention

In its recently proposed order directing equity exchanges and FINRA to jointly develop a new single national market system plan to govern the dissemination of real-time, consolidated equity market data for NMS stocks, the SEC states that “changes in the ownership structure of exchanges—in particular the demutualization of the exchanges and the rise of ‘exchange groups’—have created conflicts between the SROs’ business interest and the need to ensure prompt, accurate, reliable, and fair dissemination of core data.”[1]  In short, the SEC argues that U.S. equity exchange obligations as self-regulatory organizations and the corporate structure of their parent companies are conflicts of interests that need to be addressed via regulation.

A Closer Look at the Numbers

Market data and feeds revenues from U.S. exchanges totaled $2.0 billion in 2019, with the futures and equity market data segments accounting for the vast majority of the total.  But smaller product segments such as options data and fixed income revenues are surging, with rates of 14.0% and 148.3% in 2019, respectively.  In contrast, futures market data revenues increased 3.2% to $816.6 million in 2019, while equity market data revenues were up 1.1% to $709.7 million.

U.S. exchange revenues derived from equity market data sales (SIP and proprietary combined) have experienced slower and slower growth rates in recent years, with the year-on-year growth rate falling to 1.1% in 2019, far behind the 6.7% YoY growth rate for the sale of all market data products.

For more information on our new report Information Services Strategies of U.S. Exchange Holding Companies, click here.

David Tabaka is an Analyst at Burton-Taylor International Consulting, part of TP ICAP group, where he is responsible for research and analysis covering Global Exchanges and Index Providers.

[1] https://www.sec.gov/rules/sro/nms/2020/34-87906.pdf

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