30 April 2019, London and New
York: Challenger
data provider, Exchange Data International (EDI), is set to upset the US $2
billion reference data industry. An expert in global securities reference data,
EDI is now taking on one of the most arcane practices in the data industry and
challenging some of the world’s largest data vendors head-on in the process.
Most
data users are unaware that they are in effect only renting their data from the
major data vendors. Should they wish to go elsewhere, the vendor will require the
departing client to delete their historical reference data on termination of the
contract. While this practice continues to be legal in the United States, it
could be violating EU anti-competition laws.
It always
comes as a shock to financial data consumers when they find out that they have
only been ‘renting’ their data, and are effectively locked into their contracts.
This has significant implications for all users of historical data, including
quant analysts who rely on it for their algo strategies, and compliance teams which
are required by legislation to maintain accurate data history. EDI’s strategy
is to sell rather than rent data, and to offer hard-to-match cost-savings.
EDI is
the only sizeable data vendor which believes that clients should own what they
pay for. The concept of ‘renew or lose what you’ve paid for’ has always
appeared to EDI to be manifestly unfair, anti-competitive, and very probably
built on less-than-solid contractual foundations. EDI is the only leading data
provider which does not rent data; on termination, EDI’s clients may retain the
data they paid for.
Jonathan
Bloch, founder and CEO of EDI, said: “We feel that the relationship between the
provider and the consumer of reference data is heavily biased in favour of the
provider. The onerous termination clauses are an effective barrier to entry for
new potential data providers and may even be anti-competitive under EU law and
local/national laws. This is damaging to data users, who are locked into an
expensive and inflexible relationship with the ‘big four’ data vendors; it also
makes it difficult for would-be entrants to the industry. There are now very
few independent data providers left, and redistributors are increasingly
vulnerable. It is a monolithic legacy business in need of a good shake-up, and
EDI is doing the shaking.”
EDI
commissioned a review from a major international law firm1 of the
current legal position for this type of data supply contract. The review
underscored EDI’s long-held view that the current requirement of major data
vendors for clients to expunge historical reference data on termination of
their contracts potentially violates European competition law. The effect of
such contracts is to force a client into an almost impossible situation: ‘Stay
with us, and we’ll continue to rent the data to you. Terminate the contract and
say goodbye to your data history’.
Bloch
added: “Based on our legal advice we believe that a financial data consumer
based in Europe and challenging this termination clause has a fair chance of
getting it held to be in violation of European anti-competition law and
therefore unenforceable. But this route is not available to US users.”
While some
financial firms only focus on the last ten years of data, most quant traders
will be working with a twenty-year data set and the loss of even several years’
data could force them to remain in an expensive and inflexible relationship.
1 Legal Notes
EDI’s lawyers’ research supports
the proposition that the major data vendors may be in violation of Article 102
of the Treaty of the Functioning of the European Union (TFEU competition law).
EC law states clearly: Any abuse
by one or more undertakings of a dominant position within the internal market
or in a substantial part of it shall be prohibited as incompatible with the
internal market in so far as it may affect trade between Member States.” This
‘dominant position’ arises because such a requirement effectively excludes new
entrants to the data industry, as almost all new data vendors would lack – and
could not acquire – the decades-old data which clients require.
# # #
Editorial
contacts
John Norris / Alla Lapidus
Moonlight Media
Tel: +44 (0) 20 7250 4770
About Exchange Data International
EDI, established in
1994, helps the global financial and investment community make informed
decisions through the provision of fast, accurate, timely and affordable
reference data services. EDI’s extensive content data base includes worldwide
equity and fixed income corporate actions, dividends, static reference data,
closing prices and shares outstanding, delivered via data feeds and the
Internet.
EDI is based in London, with offices in New York, India, and Morocco. For more
information about EDI, please visit http://www.exchange-data.com.
In May 2018 EDI was
named Best Corporate Actions Initiative of the Year in the IMD/IRD Awards 2018.
