The Financial Conduct Authority has published a Call for Input (CFI) looking at the use and value of data and advanced analytics in wholesale financial markets. It seeks to understand how data and advanced analytics are being accessed and used, the value offered and whether these products are being competitively sold and priced.
The regulator will be scrutinising the use of what has become known as 'alternative' or 'big' data such as satellite imagery, client data, location data and social media and considering whether firms with access to such information and tools to analyse such information have a market advantage. It is looking at all data available from or accessed in the UK, regardless of where it has been generated.
The CFI considers:
Trading data (including information on prices, bid/ask quotes and volumes available for trading): The FCA observes that this has recently become a major source of revenue for trading venues and a key growth driver. It will look at issues such as market dynamics, pricing levels, quality and innovation in provision of trading data and the potential for discriminatory pricing.
Benchmarks: The FCA notes that the importance of certain benchmarks to investors seems to be growing and it seeks to explore market dynamics, impact of concentrated markets, pricing, quality and innovation, transparency and complexity of contract terms and vertical integration.
Market data vendor services (data vendors generally provide desktop or web based products with sets of content such as trading data from various exchanges, research, analysis, statistics and news): The FCA will look at issues such as market dynamics, how data vendor products and services are sold and vertical integration.
Access and use of data and advanced analytics in wholesale markets: The FCA wants to understand how market participants are capturing and using alternative data and the analytics being applied to generate meaningful insights from unstructured data sets. It will look at how this data is used in business decisions and activities in a way that may change business models and data strategies. It notes that use of data and advanced analytics can pose risks to competition and potentially market integrity if those with access to certain data and technology can identify market movements ahead of those without such access. The FCA will consider information sharing, collusion and biases as well as data governance, controls and ethics as part of its review.
The changing use and value of data and analytical techniques is transforming how business and markets function. Wholesale participants have long been using new data sources and improving their capacity to extract valuable insights from such data. While the FCA sees the benefits of technology and innovation, it is clear that it is concerned that it understands both the risks and the opportunities that are generated by these. This will help inform the regulatory environment and in which the regulator and market participants seek to balance risk against benefit.
Responses to the CFI are due on 1 May 2020.
Christopher Woolard, Executive Director of Strategy and Competition at the FCA, said: ‘Wholesale financial markets play a vital role in our economy, and it is important that they work well. There is rapid and wide-ranging innovation in data in wholesale markets as firms become better able to gather and analyse data. More efficient, comprehensive and timely data for wholesale market participants have the potential to generate significant benefits. But these changes may also create new risks that may require us to act. We are launching this review to better understand any risks and assess whether FCA action is needed.’