30 April 2019, London & 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 Should they wish to go elsewhere, the vendor will require the departing client to delete their historical reference data on termination of the contract.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.
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John Norris / Alla Lapidus
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.