Market Data Compliance: a New Headache for CFD Firms?

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1. Markets.com

Legal: HotForex is a registered brand name of HF Markets Europe Ltd a Cypriot Investment Firm (CIF) under number HE Regulated by the Cyprus Securities and Exchange Commission (CySEC) under license number /HotForex is governed by the Markets of Financial Instruments Directive (MiFID) of the European Union.

Many industry firms have failed this test and have been audited as a result. Market data should be treated as an asset but is often perceived as just a cost. The client organisation often thinks that it can do whatever it wills with the data, instead of the rights granted in the licence. Thirdly, onward redistribution, in most cases, on an unlicensed basis, to API clients for example, builds immediate liabilities that increase over time.

Finally, companies do not seek help from market data experts until after they have been informed that something is wrong. The single most effective way I have helped clients discover and mitigate market data licensing or usage issues is to conduct an internal audit, and therefore knowing where problems lie provide transparency for decision makers to take on board recommendations and minimise business disruption and financial liabilities.

The exchange will always cease supply of data until and unless they are satisfied by the data governance post-audit, as well as any liabilities found having been settled in full. The knock-on effect is to all B2B API clients of the firm who in turn are audited, and liabilities imposed — this has a material and substantial financial and relationship effect between all parties and can result in loss of business.

Market data audits are a reality and will not go away. Not only is the licensing important, but also how API agreements address market data between different businesses and how websites are worded when it comes to derived data. These factors are often underestimated to the detriment of the client organisation. The industry standard for retrospective market data audits is 36 months, though 5 years is fast becoming the new benchmark, meaning a greater liability over a longer period.

For example, the Cypriot regulator is actively engaged with the likes of Deutsche Börse and CME in stressing the need to its members of being properly licensed as a condition of being granted a licence to operate.

To put some context around my statement, I have tested so-called derived data from over 20 firms within the CFD industry, and one technology supplier, only five of them would have met the minimum standard of what derived data is defined as.

Therefore, there will always be a domino effect where the liability rests with the client organisation as their API Agreements did not cater for market data. They utilize fractional pip pricing with a typical spread being 1.

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