The CME Group’s decision to require redistributors to soon pay a first-time ever annual fee for its historical commodities data has pitted a group of vendors against the world’s largest derivatives exchange calling the action illegal and anti-competitive.
Effective January 1, 2021, says the CME Group, redistributors of its historical commodities data will have to fork over US $30,000 a year for the data from each of its four subsidiaries: the CME, CBOT, NYMEX and COMEX, Redistributors will also have to report who is receiving the data on a monthly basis. The new fees and policy for historical data appear in a September 30, 2020 announcement the CME Group made discussing a broad range of fee changes. If all of at the 60 redistribution vendors — by some conservative industry estimates — pay the new annual fee, the CME Group could pocket an extra US$7.2 million in annual revenues for 2021. The CME Group did not respond to e-mailed questions from FinOps Report asking about its rationale for the new fee, its timing, and how many data vendors now redistribute the historical data. The number could even be closer to 100, say some market data vendors.
Jonathan Bloch, chief executive of data vendor Exchange Data International in London, wants the the US derivatives industry watchdog Commodity Futures Trading Commission, Congressional committees, and even the Department of Justice to investigate the CME Group’s new redistribution fee on historical data which he says will harm small to mid-sized, traders, investors, and vendors. Vendors will have to either absorb the entire new cost or pass along only part of the fee to clients to remain competitive. “The CME Group’s plan to charge US$120,00 a year to its distributors will make it much more expensive for small to medium institutions to obtain the data they need in a cost-effective manner and will exert unnecessary financial pressure on institutions already squeezed by the economic downturn caused by the COVID-19 pandemic,” says Bloch, in his December 3 letter to the CFTC, the Agriculture Committees of the House of Representatives and Senate and the Finance Committees of the House and Senate. The data is important to traders, portfolio managers and investors to make new investment decisions and hedging strategies as well as backtest trading strategies.
Bloch’s letter follows a November 18, 2020 letter signed by EDI and other data vendors– Activ Financial, Barchart, DTN and Xignite– in which they call the CME Group’s new redistribution fee for historical commodities data “unlawful”. They claim the CME Group has no right to charge for the data, because it doesn’t own the data which can be readily be found on the Internet. What’s more the CME Group’s policy will prevent third-party vendors from effectively competing with the CME’s own historic market data distribution unit DataMine. The vendors urge the CME Group to reconsider its decision. EDI is best known for distributing corporate actions and reference data, while the other vendors focus on market data.
Activ Financial and Barchart did not respond to requests for comment. In a statement to FinOps Report DTN’s senior vice president of global customer experience Jay Froscheiser calls the CME Group a strong partner, yet disagrees with its decision. “Prior to and after the letter was sent regarding the new fee and fare hikes, we have actively engaged with CME to help it better understand the impact ot its policies on vendors, traders and the industry,” he writes. “We look forward to ensure our customers have access to critical market data at reasonable rates and without excessive administrative burden.” Xignite’s opposition is even more strongly worded. “These fees would drive up the data distribution costs and potentially stifle innovation and competition, leaving customers with fewer options in accessing this data,” writes Stephane Dubois, Xignite’s chief executive officer in his statement to FinOps Report responding to e-mailed questions. “We stand ready to advocate for the customers who will be most affected by the fee increases.”
The brewing battle between the CME and data vendors is part of an ongoing industry dispute between exchanges and member firms over rising market data fees as exchanges try to earn more money from selling market data to offset any declines in revenues from trading operations. Market data management — buying the data and internal integration– is considered one of the top three costs for financial firms following rent and staffing. The European Securities and Markets Authority, the pan European securities watchdog, has issued a consultation paper trying to address the issue of high market data fees for European exchanges whose members and others need the data to fulfill the regulatory reporting requirements of the legislation MiFID II. Critics say its proposals aren’t enough. So far, US equity exchanges appear to have won the 14-year battle with Wall Street banks and brokers to increase some important data fees as Washington DC circuit court in June 2020 overturned the 2018 ruling by the Securities and Exchange Commission against fee increases by the NYSE and Nasdaq. The appeals court did not comment on the fairness of the new fees, instead saying that the SEC could not reject the fee increases by finding that they amount to a denial of access to the exchanges’ trading services.
Yet Bloch is undeterred by the prospect of failure noting that the war over US market data fees for equities is far from over now that the DOJ has gotten involved. In his December 3 letter to the CFTC and Congressional committees, Bloch suggests that the CFTC and DOJ can join forces to look into the CFTC’s new market data fees for commodities the same way the SEC and DOJ have done for equity market data fees. The DOJ has not publicly said whether its antitrust unit has opened a formal investigation into the stock exchanges’ data fees, but is reportedly concerned about whether exchanges are using their market power to hurt competition by forcing investors to buy other products and services in addition to the data feeds, a practice known as tying.
In his letter to the CFTC and Congressional committees, Bloch also raises the issue of the CME Group never asking the CFTC for permission to charge the new fee as required under the Commodity Futures Act and never discussing the matter with data redistributors prior to its September announcement. By press time FinOps Report could not find a record to the CME Group’s request for the CFTC’s permission to impose the new fee. It is unclear whether the CME Group believes it did not have to request permission from the CFTC for the new fee because the matter was related to a change in market data fees rather than trading or clearance or whether the CME Group decided to take a chance on the new fee being implemented without any regulatory scrutiny after the fact. The CFTC’s press office did not return an e-mailed request for comment.
Yet another argument posed by Bloch, in agreeing with other vendors, is that the CME Group doesn’t even own the data. When asked to comment about the CME Group’s premise of data ownership, Xignite’s Dubois in a statement to FinOps Report insists that the historical data is “not the exclusive property” of the CME Group because it does not meet the two standards required under US copywright legislation — originality and substantiality. “No database right exists in the US,” he adds. The vendors’ stance is shared by traders who tell FinOps Report the CME is wrong in believing it owns the historical data only because it operates the exchanges where trading occurs to generate the data. “Traders are the ones creating the end of day prices through their trading activities and without traders the CME Group would not have a product to sell,’ says one Chicago-based trader.
Last but not least, the CME’s decision is anti-competitive, says Bloch in highlighting one of the previous arguments raised by the other vendors. The CME Group owns a unit called DataMine which competes with other vendors in selling historical data and because DataMine does not pay redistribution fees as a unit of the CME it could undercut the fees data redistribution vendors charge to their clients. Although, the CME’s historical data is in the public domain, it is not in a readily usable form; there is no symbology and no way to download a datafeed for front, middle and back offices to easily consume. Hence, vendors would still need to rely on CME Group to obtain the historical data so the CME Group has put them in a bind. Bloch also insists that by requiring data vendors to report the names of their clients receiving the historical data on a monthly basis, the CME Group wants to cut out other vendors as middlemen and do business directly with their end customers. Even worse, other exchanges which allow for free redistribution of their historic data, could follow the CME Group’s lead.
“We ask that the CFTC and heads of the committees of the US House of Representatives and Senate which govern the exchanges to examine the actions taken by the CME Group with an eye to their anti-competitive impact, especially given the CME Group’s market dominance,” concludes Bloch in his December 3 letter. “We also ask that the Commission confirm that the CME Group’s new policy has complied with the self-certification process in the Commodity Futures Act and its implementing regulation. Finally, we respectfully request all affected market participants be afforded an opportunity to comment on the CME Group’s policy change with respect to historical data.”
So far, the CME Group doesn’t appear willing to budge from its stance that it is entitled to charge redistributors fees for historical data. Based on comments the CME Group made to the UK publication The Trade, about its new policy, the CME Group isn’t taking complaints from data vendors seriously. “Vendors who are licensed to redistribute our historical data are free to give it away at no charge, price it as they see fit, or even distribute as part of a service they offer,” says a recent article published by The Trade citing CME Group. “This policy has not changed; the policy going forward is that vendors will be required to pay CME Group a redistribution fee to do so.” For now, all data vendors can do is pay up and keep on protesting hoping that a regulator, lawmaker, or the US government will intervene. Whether EDI and other vendors are successful in persuading the CME Group to reverse its new policy or at least have the CFTC, DOJ, or lawmakers look into the new fee, their dispute with the CME Group has certainly raised interesting legal and practical questions that will hopefully be resolved sooner rather than later.