New Regulations Will Drive Data Costs Higher, Panel Warns

"We need more data─not only from a user perspective.... We have a huge obligation to mitigate and manage risk," said Fabienne Pirotte, a lawyer at Société Générale.

With regulators shifting over-the-counter swaps trading to centrally-cleared Swap Execution Facilities, the burden on central counterparty clearing providers (CCPs) to capture, manage and provide data to market participants is also increasing, while also placing CCPs in a pivotal─and potentially risky─role, panelists said.

"From a risk point of view... more data is needed─and not just the original data requirements that feed into swaps, but more data from CCPs. And CCPs also need data to understand the collateral required, and make sure they aren't exposed," said Andrew Lewin, market data sourcing manager at Citigroup.

"People have taken CCPs for granted. But with this concentration of risk in CCPs, people will have to look harder at them... so another data requirement arising from these reforms... [might be] new services to assess the creditworthiness of CCPs," said James Humphrey-Evans, a partner at law firm Bortstein Legal.

Panelists expressed frustration about being asked to take responsibility for and pay for data from new, regulator-mandated trading platforms-data that already exists in bilateral over-the-counter swaps trades between counterparties.

"With MiFID, there was no more data created, but our need for data increased... and it's the same here, but on a different scale, because we are not just talking about equity markets: swaps... are 500 times the value of equity markets. And we all understand equities, but we don't understand swaps in the same way, because they are bilateral contracts... so we need more information on contracts and counterparties," Lewin said.

Another cause of increased costs will be the rising number of new SEFs to which market participants will need to connect and source data from, noted Ipug and Cossiom executive David Berry, who moderated the panel, adding that the market is unlikely to bear current SEF numbers, resulting in inevitable consolidation, similar to consolidation of MiFID-created multilateral trading facilities.

With the threat of long-term higher data costs looming, some firms are now trying to negotiate data licenses with SEFs to ensure they can use the SEFs' data in the way that they need, while others are holding back from joining SEFs until data issues are resolved, or are threatening to withhold liquidity to gain concessions on costs, Humphrey-Evans said.