Canadian securities regulators consult on the regulation of real-time market data

The Canadian Securities Administrators (CSA) recently published CSA Consultation Paper 21-403 – Access to Real-Time Market Data (the Consultation). The Consultation reports on the CSA’s findings following a fact-finding review of the issues associated with access to real-time market data (RTMD). 

RTMD refers to information that is available immediately after a transaction takes place on a marketplace. It can include information such as the bid and ask price, latest stock price, highs and lows, and trading volume for the particular instrument that was traded. RTMD plays a key role in providing information to market participants to allow them to make informed investment and trading decisions. The central goal of the Consultation is to solicit feedback on how to ensure market participants are able to access RTMD in a fair and cost-sensitive manner. 

Accessing RTMD has become increasingly complicated and expensive over the years as the same instruments are now being traded on multiple marketplaces, including exchanges and alternative trading systems, instead of on a single listing exchange. In Canada, multiple mechanisms regulate access to RTMD; however, market participants are concerned the current regulatory regime is not sufficient to ensure fair access. 

It is in this context that the CSA undertook its review and published the Consultation. The Consultation sets out the current regulatory regime for RTMD, describes how the current regime creates issues related to accessing RTMD, proposes both initial and long-term options to address these issues, and seeks input from market participants on those options. The Consultation further poses a number of specific questions related to each option, and invites stakeholders to comment on these specific matters. 

Accessing RTMD

RTMD for each transaction occurring on a given marketplace is produced by that individual marketplace. It is then distributed by the marketplace either to end-users directly, or to third-party data vendors who package and deliver it to end-users in their desired format. RTMD is available at the individual marketplace level or in consolidated form (Consolidated RTMD). Because marketplaces are the sole producers of the RTMD, there is no competitive pressure to drive down prices, meaning marketplaces have control over the fees they charge for providing access to their RTMD.

The fees incurred by end-users to access RTMD vary significantly based on a number of factors. Different market participants require varying levels of complexity in their RTMD, leading to increased costs; human users of RTMD must pay more for RTMD than machines or algorithms due to the higher costs associated with displaying RTMD in a readable format; and users may be charged distribution fees if they intend to redistribute RTMD. All of these factors can increase costs and obstruct users’ access to RTMD. 

Current regulation

RTMD fees are currently regulated through a number of mechanisms. National Instrument 21-101 Marketplace Operation (NI 21-101) indicates that RTMD fee changes are subject to regulatory review and approval. The focus of this review often involves assessing whether these fees prohibit certain users from accessing RTMD. The CSA has also formalized the Data Fee Methodology (DFM), which establishes an acceptable fee range for certain marketplaces. Marketplaces are further subject to review by various securities commissions, which may examine changes to fee proposals from time to time. However, these regulatory review and approval processes have not resulted in significant improvements to RTMD fees.

The CSA has also mandated that a central party be tasked with publicly disseminating Consolidated RTMD (the Equity IP) to alleviate the effects of the fragmentation of information resulting from the multiple marketplace environment. The Equity IP is currently operated through the TSX. To access Consolidated RTMD through the Equity IP, each user must contract with each marketplace that contributed to the Consolidated RTMD. Further, users must pay the fees charged by each individual marketplace that contributed to the Consolidated RTMD that they are accessing. This results in a complex system with numerous contracts and significant fees for users.

Proposed options

The Consultation sets out a number of short-term and long-term proposed options to address issues associated with access to RTMD. The CSA is seeking comments on these options and answers to specific questions associated with each option from interested market participants.

Short-Term Options (1-2 years): 

First, the CSA proposes that marketplaces should be required to publish a description of fee changes and explain how the changes comply with the fair access requirements set out in NI 21-101. This proposal would force each marketplace to publicly justify the fees that it is charging for RTMD. Approval of fee changes would be subject to feedback from market participants. 

Second, the CSA proposes reviewing and updating the DFM to ensure that the DFM is setting acceptable reference points for RTMD fees. This option also suggests publishing the various fee ranges calculated under the DFM. This would provide market participants with an understanding of why certain marketplaces increase their fees, resulting in increased transparency and accountability from such marketplaces. 

Third, the CSA proposes establishing a standardized set of terms to be used when contracting with each individual marketplace. This would remove certain interpretive issues and may further streamline access to RTMD in the future, as market participants will not have to grapple with numerous contracts – each with its own set of distinct terms.

Long-term Options (over 2 years): 

The CSA’s long-term options focus on enhancing the use of the IP model. Currently, the Equity IP’s role is to consolidate and disseminate RTMD, but the fees and contract terms are still set by each individual marketplace. The CSA proposes adopting a new form of IP that would play a stronger role in regulating these fees and contract terms. The CSA also proposes creating an Administrative IP (Admin IP) model. Under this model, marketplaces would be mandated to contribute RTMD to multiple lower-level IPs, and the Admin IP would oversee those IPs. The Admin IP would also set RTMD fees, set contract terms to govern access to consolidated RTMD, and standardize consolidated RTMD products.

Conclusion

The full text of the Consultation is available here. The consultation period under the Consultation will remain open until February 10, 2023.