Canadian securities regulators’ latest efforts to promote fair access to real-time market data

Overview

Real-time market data (RTMD) refers to order and trade information about equity securities distributed immediately after an order has been entered, amended or cancelled or a trade has been executed on a marketplace. Access to RTMD is important for the proper functioning of the capital markets because dealers and investors rely upon it to make informed investment decisions and dealers use it to help comply with their regulatory obligations when handling and routing orders. 

Since marketplaces are the sole producers of RTMD in relation to equity securities traded on their facilities, there has long been concern over information fragmentation (a concern that has been addressed in part by regulating consolidated distribution of RTMD for professional use through a central party) and the costs of accessing RTMD in a market that does not foster competitive pricing. 

The tension between the importance of RTMD and the ability of market participants to access it fairly and equitably has led securities regulators globally, including in Canada, to pay close attention to the fees charged for RTMD,  in an attempt to ensure fair access to capital markets that promotes efficient price discovery. On April 18, 2024, the Canadian Securities Administrators (CSA) published Staff Notice 21-334 Next Steps to Facilitate Access to Real-Time Market Data (the Staff Notice) following a stakeholder consultation process initiated with the CSA’s publication of Consultation Paper 21-403 Access to Real-Time Market Data on November 10, 2022. The Staff Notice sets out the next steps to be taken by Canadian securities regulatory authorities to address RTMD concerns, including:

• the implementation, by the Ontario Securities Commission (OSC), of an enhanced transparency regime for proposed RTMD fee changes in relation to the marketplaces it regulates;
• the establishment, by the CSA, of a committee to consider issues in relation to the “data fees methodology” (DFM), a tool used by securities regulatory authorities in assessing professional user fees charged for RTMD; and
• the establishment, by the CSA, of committees to (i) consider ways in which to offer consolidated RTMD products to retail investors and their advisors in an attempt to further address fragmentation, and (ii) present recommendations regarding terms and definitions that should be standardized when used in RTMD products and services.

Enhanced transparency for RTMD fee changes

Most marketplaces in Canada (including exchanges and alternative trading systems) are subject to a process for the review and approval of rule and fee changes (the Protocol) that is intended to promote transparency. On April 5, 2024, the OSC published a revised Protocol (the Revised Protocol) intended to create an enhanced transparency regime for reviewing and approving fee changes related to RTMD¹. The Revised Protocol took effect on April 18, 2024, the Staff Notice's publication date. The Revised Protocol creates a new category of fee change, referred to as a “Real-Time Market Data Fee Change” for proposed fee changes in relation to RTMD services.

The Revised Protocol defines the term “Real-Time Market Data Fee Change” (RTMD Fee Change) to mean a change to fees related to “a service which impacts the access to order and trade information that is distributed immediately after an order has been entered, amended, or cancelled or a trade has been executed.” This includes, among other things, fee changes for top-of-book (level 1) and depth-of-book (level 2) data, distribution, display, non-display, and applicable connectivity fees.

Under the Revised Protocol, marketplaces subject to it must, 30 days prior to the proposed implementation of an RTMD Fee Change, submit certain information to the OSC. Within two business days following submission to the OSC, a marketplace must publish the RTMD Fee Change on its own website. In addition to information that must currently be provided to the OSC about other types of fee changes (including a discussion of how the change complies with fair access requirements), a marketplace proposing an RTMD Fee Change must provide the following: 

• a description of the methodology used to determine the proposed fee; 
• any analysis conducted to determine how the proposed fee compares to fees charged for similar services provided by other marketplaces in Canada and internationally; and 
• the costs of producing the product or service to which the proposed fee relates, where relevant. 

Materials submitted pursuant to the Revised Protocol will be published on the OSC website for a 15-day comment period. Marketplaces must forward comments received to the OSC and, should the OSC request it, prepare a summary of the public comments and their responses to them promptly after the close of the 15-business day comment period. The OSC will use best efforts to complete its review of an RTMD Fee Change by 30 business days from the date of submission. 

The changes introduced by the Revised Protocol on RTMD Fee Changes will be reviewed after 18 months.

Looking ahead: beyond transparency

The CSA has identified several areas for further study through industry committees, including reconsidering the data fees methodology (DFM), further addressing the issue of fragmentation through an assessment of access to consolidated RTMD by retail investors and their advisors, and standardizing terms and definitions used in consolidated data agreements. 

In the near term, the CSA is prioritizing consultation for the DFM study. DFM has been used since 2016 as part of the fee change process, and helps the regulatory authorities assess the compliance of marketplaces with the fair access requirements of NI 21-101 in charging fees for access to and the use of RTMD by professional users. The mandate of the industry committee is to prepare a report answering at least five questions, including whether a DFM should be continued as the means used to assess the RTMD fees that marketplaces charge to professional users, and whether different DFMs should apply for different types of markets. 

Industry stakeholders interested in participating in the DFM study should apply to the CSA by May 31, 2024.

The authors would like to thank Viktor Hohlacov, articling student, for his contribution to preparing this legal update.