By Jason Kennard, head of business development at ARK Invest Europe
Recently announced plans by the London Stock Exchange (LSE) to eliminate fees for real-time market data has been warmly received by retail brokers and market participants.
By taking this step, the LSE is not just focusing on its bottom line – it’s genuinely working to democratise capital markets and create a more inclusive environment for individual investors.
The change, which will come into effect from January next year, has been lauded for helping to create a more equitable marketplace where everyone can compete more fairly with institutional investors. It also means they will have the research tools they need to delve into investment products and themes they may not have considered or fully grasped before.
Using market information to improve trading outcomes
Free-fee access to real-time market data can make a world of difference for retail investors who may have previously faced barriers to obtaining timely and accurate information. In today’s fast-paced financial world, having access to up-to-date data is essential for making informed investment decisions – or risk missed opportunities or misinterpretations leading to less robust investment decisions.
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With free access to real-time data, retail investors can keep tabs on stock performance, watch market trends, and react quickly to changes. This not only gives individual investors a sense of empowerment, but also levels the playing field, helping them make more informed investment choices based on the latest information rather than relying on outdated data.
This can significantly enhance trading outcomes for retail investors. They can analyse patterns, assess risks, and adapt their strategies based on what they see happening in the market. This creates a better trading experience for individuals, allowing them to engage more confidently in the markets.
Enhancing market liquidity
One of the most significant impacts of this initiative is its potential to boost market liquidity.
Market liquidity is about how easily assets can be bought or sold without causing large price swings. High liquidity is beneficial for everyone involved, leading to tighter bid-ask spreads, lower trading costs, and more efficient price discovery.
- More participation from retail investors: By providing free access to real-time market data, the LSE is likely to encourage more retail investors to jump into the market. When individuals feel empowered with the necessary information to make informed investment decisions, they are more likely to engage actively. This increased participation can lead to higher trading volumes, which is great for market liquidity.
- Higher trading volumes: With more retail investors entering the market, trading volumes are expected to rise. Increased activity means more buy and sell orders, creating a livelier and more liquid market. More trading helps ensure there are enough buyers and sellers, which is essential for keeping liquidity strong.
- Tighter bid-ask spreads: As liquidity increases, so do the chances for tighter bid-ask spreads—the gap between what buyers is willing to pay and what sellers are asking for. Tighter spreads benefit everyone by reducing trading costs and increasing the efficiency of transactions. The more retail investors get involved, the more competition there is, which leads to these tighter spreads.
- Market resilience: A liquid market can also better handle shocks and volatility. When there are many participants ready to buy or sell, it helps absorb fluctuations in prices, ensuring that trades can be executed without major price impacts, even during turbulent times.
Long-term industry implications
By removing financial barriers to accessing market data, the LSE is likely to encourage greater retail participation in the capital markets. An increasing number of individuals, especially younger investors, are becoming interested in investing. They are often looking for platforms that offer transparency and accessibility.
As retail investors gain more access to information, they are more inclined to explore various investment opportunities and actively engage with the market. This increase in participation can lead to a more diverse and dynamic investor base, benefiting the overall economy.
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The LSE’s decision to provide free access to real-time market data has exciting implications for the financial industry. As retail participation grows, financial services firms may innovate to cater to a more engaged investor base.
This could mean developing new tools and resources aimed at enhancing the overall investor experience, such as educational content, user-friendly platforms, and analytical tools.
Additionally, as retail investors become a more influential force in the market, firms will need to adapt to meet their needs and preferences, leading to a more customer-focused approach in the industry. We have seen the likes of Freetrade, Robinhood and Trading 212 offering securities lending to retail investors as a new development, for example.
Empowering investors
The LSE’s move to eliminate fees for real-time market data is a significant step in making capital markets more accessible for retail investors in the UK. By enhancing access to information, improving trading outcomes, and boosting market liquidity, it empowers individual investors and fosters a more vibrant investment landscape.
As retail investors gain greater access to vital information and engage more actively in the markets, the entire financial ecosystem stands to benefit. This initiative paves the way for a more inclusive and dynamic future for all investors.
