The Market Data industry has evolved considerably in the last 25 years but especially since the financial crisis in 2008. Many firms have spent more time and effort in setting up a professional Market Data* Management structure, the administration and guardianship of market data services and third party relationships resulting from the procurement and usage of market data by a firm, in order to meet internal demand and deal with external supplier and regulatory requirements.
But despite the fact that market data is the lifeblood for all professionals in the market data industry, many firms still lack a clear market data strategy.
WHY IS A MARKET DATA STRATEGY RELEVANT?
Defining a strategy is hard work. It takes time, resources and distracts from the urgency of running the day-to-day business. But there are many reasons why you should invest in this:
1. Without a strategy, market data teams can “drift away” from its end users and they do not achieve business alignment; as a result they become more of a nuisance than of added value and eventually they are at risk of being ignored or even displaced by an outsourced solution.
2. Today’s markets are more transparent, volatile and in predictive than ever. Any firm that wants to achieve and maintain a competitive business advantage in this predator industry needs to have a clearly defined and managed market data strategy.
3. Cost pressures force the improvement of operational efficiencies, implementation of automated processes, economies of scale, rightsizing and standardisation.
4. In order to comply with a wide range of external regulations, a high level of data quality needs to be maintained; at the same time competition forces consumer firms to drive down costs and focus on usage transparency.
HOW DO YOU DEFINE A MARKET DATA STRATEGY?
In order to define a market data strategy, market data teams should first of all have a thorough understanding of their companies’ goals & business drivers. The focus of your company on specific geographical markets or client segments will provide you with relevant input for your market data strategy. Strategy is about making choices. What products, services and markets will be a part of the future and what should we do or not do?
The next and more difficult step is to analyse how your business generates revenue by using market data services. Understanding how your business users make money and knowing how dependent they are on the availability and functionality of the current and future market & reference data services, will determine how willing your business is to spend money on people, hardware, software and content.
Thirdly you and the people you service must know what market & reference data services are in your remit. Does this include data feed products, market data technology, ratings data, index licenses or even brokerage of custodian fees?
Last but not least, the market data strategy that you outline should be defined and supported by your market data organisation (people). International studies amongst the most successful firms (based on their stock exchange performance) over the last 50 years show that People come before Strategy, meaning that qualified people will develop a good strategy.
The purpose and value of taking a strategical approach to market data management is often being ignored when “decision makers” think tactically, taking a simplistic approach by demanding to focus on short term cost savings. This is when market data management strategies start to drift and deteriorate until an organisation is suddenly confronted with:
- Declining business margins
- A damaging exchange or vendor audit, with reputational and financial risks
- The need to produce more and better data from a regulatory perspective
HOW TO ORGANIZE MARKET DATA MANAGEMENT – SCREEN 5 PILLAR MODEL
A properly resourced Market Data Management organisation offers incredible value in the form of
- Maximising value (usage)
- Mitigating operational risk (compliance & quality)
- Influencing corporate strategy (technology, spend)
- Driving efficiencies through accountability & transparency
Short term cost-savings should be viewed as a by-product, not the end result, of an effective market data strategy. Through spend transparency, optimised usage, and clear decision-making at a strategic and tactical level, appropriate spend becomes the objective.
Screen has been providing Expert market data assistance to more than 500 end user firms worldwide since 1990. That experience includes more than 10.000 end user interviews from front- to mid- and back office consumers of market data services. Screen has developed a 5 pillar model, based on best practice experience that comprises all relevant roles & responsibilities needed to get most value out of your market data portfolio of services.
Ask yourself a few simple questions and determine if your organisation appreciates the (changing) value of market data:
1. Does your firm have a Market Data Strategy and is this communicated to all stakeholders?
2. Do you know your current annual Market Data spend and is this in line with the numbers from your Finance team?
3. Do you feel that you are paying too much for the delivery of market data services?
4. Do you feel confident that your end users only have access to the most suitable products and services available in the market or do you expect some of them to be ‘nice to have’?
5. Do you have transparency into the services by user?
6. Do you pay the best market prices for services rendered by your suppliers?
7. Can you prove data consistency and accuracy to your auditors, regulators and customers?
8. Are you confident that your organisation is compliant with the vendor & exchange T&C’s you have agreed and do you understand the financial and reputational risk of non-compliance?
Your organisation will substantially benefit from having a clear market data strategy. This strategy can be defined by your own people. If your market data landscape is not large enough however to employ a dedicated team of professionals, you can engage with a specialist market data firm to assist in the process.
In any case, you should look differently at the value of market data for your organisation by not accepting anything less than that you have immediate access to an accurate market data inventory and to your vendor agreements including your usage rights. It should be best practice in your firm that all vendor invoices will be validated against your vendor agreements (and not against previous invoices….) and that you will be alerted timely about relevant contract renewals. Your market data inventory system should be more than an accounting or bookkeeping tool – this is old school; it should help you analyse and optimise your market data landscape.
You should be assured that your users will have access to the best possible services and that your vendor agreements are Best in Class and in line with your industry Peers. You should feel confident that continuity of service is guaranteed and that you do not need to worry about finding, training and motivating staff.
Your business is expecting a professional service that is personalised, proactive, immediate and scalable which means it should be able to grow or shrink dependent on your business strategy. Risks of being non-compliant should disappear and you want to experience that your business users will be much more engaged with the way in which your firm uses market data services.
If your organisation has achieved the above, you have done an excellent job!
(*Market Data refers to financial information necessary to research, analyse, account for and trade financial instruments of the world’s financial markets across all asset classes.)