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Sean Foley is a 3rd year PhD candidate at the University of Sydney, and is also a student of the Capital Markets CRC. His primary focusses of study are insider trading and manipulation in dark pools. As part of his PhD Sean was on sabbatical at the Ontario Securities Commission, the financial regulator of Canada. The current paper was written during this period, and has been used to assess applications from marketplaces to increase their fee levels.
This paper presents empirical estimates of the value of data-feeds from individual marketplaces trading in Canadian equities using a variety of pre- and post-trade metrics. We analyse how different metrics which are used by organisations such as the US Securities Information Processor can be manipulated to alter the distribution of revenues, as well as the sensitivity of the estimated market share to changes in the construction of the metrics. These estimates of market share are used in conjunction with the actual fees charged by the marketplaces to assess the value of their data feeds. We then compare the prices charged for data in Canada to a variety of comparable markets to come up with an internationally "fair fee" for each of our exchanges. We find that some marketplaces charge in excess of the "fair" fee representing their contribution to price discovery, with the overall cost to Canadian data consumers much higher than in comparable international markets. The results of our analysis are useful not only to exchanges participating within a revenue sharing model but also to regulators requiring a methodology by which to assess the value of the data sold by their national exchanges. These results also shed light on what kind of metrics should be used when introducing a regulatory regime, and allows market participants concerned about the fees they are charged for access to such data to assess any level of overcharging.