Market data costs have been under scrutiny for years in the financial services sector. Recent research has found that vendors were "gouging users with aggressive price raises3 ", and despite the known challenges (below), the demand for market data has been almost insatiable over the last 15 years4 , enabling additional or increased market data fees almost annually.
For every well-known on-premise use case, this presents different challenges in the cloud. The cloud, like on-premise, should not lose the data, the operations support team must know where to look.
- Unclear data vendor rate cards – consumers procure datasets at "massively different price points5 ".
- Rising renewal rates – stemming from the above.
- Complex market data licenses – resulting in a gap between compliant usage and actual usage6.
Due to rising trading costs, trading activities are impacted negatively. A recent survey7 reportedly found that 33% of participants reduced their presence in some markets or products, with 29% performing fewer trades due to high cost.
Suzanne Lock, Chief Executive Officer at EOSE Data said, "The demand for market data continues to grow and procurement teams are expected to find the best solution for their ever-more complex use cases. The trading venues, brokers and exchanges that EOSE represent are working hard to provide greater transparency and depth of data without putting unnecessary costs onto firms." She added, "The challenge for data producers is to offer flexible licenses which support varying use cases via multiple vendors for different activities while maintaining correct governance and control to ensure fair and reasonable pricing across all firms.
Controlling Market Data
Spend Trial and Tested – Centralisation
Despite various regulatory plans8, investigations9 and spot-checks10 to tackle rising wholesale prices (with limited success11), firms are not without options. To rein in escalated market data spending, CJC's Global Head of Commercial Management, Sara Baker, suggested that firms centralise market data subscriptions as an initial step, "With a detailed and centralised inventory, upcoming contracts can be reviewed, allowing vendor managers to be prepared with plenty of time and information to negotiate with vendors."
To achieve greater cost efficiency, Sara outlines how her Commercial Management (CM) team approaches data inventory management and centralisation projects:
| (1) Audit | (2) Assess | (3) Action Recommendations |
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Firms then face 2 decisions. Which recommendations (if not all) to implement and whether to leverage Sara's 'action-ready' CM team or establish a new internal function to manage going forward? (More on this later)
Market Data Administration
To achieve a detailed and centralised inventory, Sara emphasized how crucial it was for the client to benefit from an inventory management platform, citing Calero's MDM12 and TRG's Optimize Spend13 as leading industry standard solutions. Inventory management is "where everything starts, including the audit" and will be the "golden source for information." By centralising data subscriptions into the tool, Sara notes that clients potentially gain a consolidated and holistic snapshot of information for billing and potentially renegotiate agreements, for example, negotiating preferential terms to reduce costs if there are additional users or fewer users with fewer requirements.
Precise Efficiency Beyond Administration
While the inventory tool is the administrative vehicle for recording and understanding your information to control costs, the team processes that feed information into that tool are the fuel that sustains it. Centralised ownership must ensure the information is accurate and up to date to avoid duplicated services and potentially relocate unused resources, a potential low-hanging fruit for cost avoidance. A recent project by Sara's team illustrated this well:
"When you procure a premium vendor terminal, costs can be more than $2,000 per user per month over a 2-year duration. Managing multiple terminals with licenses starting at variable dates, which cannot be cancelled, is a difficult task. Add in users leaving mid-term, a frequent occurrence in large organisations, and you are stuck with an unnecessary monthly spend of $2,000 per terminal. By centralising the administrative process, the market data 'owner' has the necessary oversight to relocate unused terminals to a new joiner, another frequent occurrence, without ordering additional terminals."
Like the humble lightbulb, this may seem insignificant, but the commercial impact in aggregate is massive. In 2 months, a UK-based leading financial company avoided $1.9 million worth of annualised costs through a wellmanaged process for relocating leaver's unused licenses and terminals.
Access Case Study*
Controlling Market Data Spend
Market data-consuming firms need to centralise for market data spending to be controlled. Unfortunately, most financial firms administering market data in-house suffer from multi-team fragmentation and inconsistent data administration. Market data may fit in one of many teams – legal, finance, procurement, administrators, or technology – but ultimately, it is often not a dedicated function and is likely pushed from pillar to post against conflicting priorities.
The faster a centralised market data management function is established and connected to the various teams that feed key information into the inventory tool, the faster tangible cost savings will materialise. Depending on the urgency for results, firms may implement the function internally or outsource (partially or wholly) to an established and experienced team, like CJC's Commercial Management Team** led by Sara.
Regardless of which option and to side-step the age-old why-managed services14 debate, the CM team can design and implement a hand-over strategy once any initial work is completed. However, there is a risk of market data estates rapidly spiralling and reverting into a decentralised state, accompanied by loss of market data spend control.
Putting a spotlight on how CM supports clients, Sara replied, "We provide consultancy to centralise a proprietary market data team and design a new market data strategy that increases visibility and control." Where firms choose to outsource their market data management function as an ongoing service, Sara said, "As a managed service, we provide a 24x7x365 centralised team of specialists and it is our responsibility to cover all sickness holidays as a managed service", which avoids potential single points of failure and ensures business continuity.
Sara emphasized that the CM team were "market data management experts, not just inventory experts, and our clients gain access to CJC's wider team of technical market data experts.
Wrapping up the discussion, Sara summarised, "If you have fit-for-purpose market data controls and management in an inventory platform with a centralised administrative team and efficient workflows, then costs should be more effectively managed. Procurement will also be armed with all the usage and business requirement information, enabling negotiations with vendors to stop costs from escalating."
Footnotes
1. Adrian, T. (2023) "Higher-for-Longer Interest Rate Environment is Squeezing More Borrowers" at "https://bit.ly/3Tc1F7V" [Accessed 5 Dec 2023].
2. Smith A. (2023) "Market data prices rising 'faster than ever' despite FCA investigation, new data finds" at "https://bit.ly/46Enct2" [Accessed 5 Dec 2023].
3. FinExtra (2023) "Research finds market data vendors are gouging users with aggressive price raises" at "https://bit.ly/483nYkl" [Accessed 5 Dec 2023].
4. Weinberger H. (2023) "Market Data for Wealth Management: How Demand for Data has Changed in the Last 15 Years" at "https://bit.ly/3NifsWH" [Accessed 5 Dec 2023].
5. Natale R. (2023) "Market data consumers buy the same products at massively different price points" at "https://bit.ly/3uSL12T" [Accessed 5 Dec 2023].
6. Lanterna A. (2023) "Market Data: what they are and why it is important to know how to manage them" at "https://bit.ly/3RtyfQn" [Accessed 5 Dec 2023].
7. Preece C. (2023) "Proprietary traders prioritising FX as rising costs lead firms to trade fewer products and markets" at "https://bit.ly/47HJLyl" [Accessed 5 Dec 2023].
8. Ramsay J. (2023) "Breaking Down the SEC Plan on Exchange Fees" at "https://bit.ly/3uGvyTv" [Accessed 5 Dec 2023].
9. Smith A. (2023) "Market data prices rising 'faster than ever' despite FCA investigation, new data finds" at "https://bit.ly/46Enct2" [Accessed 5 Dec 2023].
10. Wong W. (2023) "French regulator turns up the heat with spot checks on market data providers" at "https://bit.ly/3uI56ZL" [Accessed 5 Dec 2023].
11. Smith A. (2023) "Competition in wholesale data market is not working, first phase of FCA investigation finds" at "https://bit.ly/47ZpOCQ" [Accessed 5 Dec 2023].
12. Calero, "MDM - Secure Market Data Management" at "https://bit.ly/47JdG9p" [Accessed 5 Dec 2023].
13. TRG Screen, "Enterprise Spend Management Optimized" at "https://bit.ly/3NcNg7A" [Accessed 5 Dec 2023].
14. TRG Screen, "Outsourcing the market data management function: fairytale or reality?" at "https://bit.ly/3NfaA4N" [Accessed 5 Dec 2023].
* CJC (2023) "Case Study: How CJC Helped a Financial Firm Avoid £2.5m in Annual Market Data Costs" at "https://bit.ly/4aQSal8" [Accessed 08 Jan 2024].
** CJC (2023) "Commercial Management Expertise" at "https://bit.ly/47UALWs" [Accessed 5 Dec 2023].
Originally published 16 January 2024
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.