The Financial Conduct Authority has planned two market studies to ensure that investment markets are competitive.
In response to a call for papers, the FCA heard concerns that limited competition in the benchmark, credit ratings and trading data markets could increase costs for investors and affect investment choices. .
In a market study, which will begin this summer, the FCA will examine concerns that complex contracts for benchmarks and indices prevent switching to cheaper, better or more innovative alternative suppliers.
Benchmarks and indices are used by market participants such as asset managers, banks and clearing houses to monitor and evaluate asset prices and investment performance.
By the end of the year, the FCA will launch a second market study to assess whether high fees for accessing credit rating data increase costs for investors and limit new entrants to the market.
Access to high quality credit ratings helps investment managers assess financial risk, influencing the investments they make.
The FCA will also begin to collect additional information on competition in the wholesale data market.
Trading data includes information on the number of financial instruments traded, what people are willing to pay for them, and the price at which trades are executed.
This data is provided by the places – like the stock exchanges – where these financial instruments are bought and sold.
Concerns have been expressed that limited competition could increase costs and impact the types of assets that investment managers buy and sell.
Access to wholesale data allows market players who manage investments to identify and assess investment opportunities.
A lack of competition could affect the quality of wholesale data and lead to higher costs for investors, including, ultimately, pension savers.
Effective competition is essential to ensure the proper functioning of markets and is at the heart of FCA’s wholesale strategy.
FCA Executive Director of Consumer and Competition Sheldon Mills said: “Access to wholesale data is really important for those who want to make investment decisions. Without it, they don’t have the information they need to make well-informed choices.
“Our call for papers and planned market studies aim to ensure that competition works well, that information is available to market players who want it and that innovation keeps pace with market developments. “