The value of Market Data – exploring the Cs.

When a manager at a financial institution becomes responsible for market data and financial information sources, and receives the first set of vendor invoices for his or her approval, the first reaction often is somewhere between disbelief and exasperation. Are these products that expensive? Do we really need to subscribe to all of this? Are there no cheaper solutions?

In order to provide some clarity and to better understand the value of market data it is helpful to consider the following.

First off, there are product & service features, and there are characteristics. Helpfully, they are all starting with C.

The most important product & service features are:
– Content
– Connectivity
– Community

Content is king in market data and financial information services. There is no doubt about that. Whether it is real time data, news, credit ratings, research, indices, etc. Content makes the markets move. The more important the content, the higher the value – and the costs.

Connectivity is all about providing the connections between market participants. The plumbing of lines and equipment that ensure that content reaches the intended recipient, and does so at the speed and with the security that is appropriate.

Community means the market participants in their actual roles, for instance as counterparty to a deal, or recipients of credit ratings. It is important that you can reach people easily and quickly, and that you can communicate, for instance through chat, with them and discuss the elements of a potential trade, or ask questions about a piece of research.

As an overlay, there are a number of product & service characteristics:
– compliance assurance
– competition (or lack thereof)
– cost flexibility

Compliance assurance is what a product or service does, or offers, to make you as a bank, asset manager or otherwise, compliant with rules and regulations. This includes the terms & conditions of agreements with the vendors, e.g., security exchanges, index providers, security identifiers etc.

Competition within a certain space tells us whether a market data product or service offering is inter-changeable with other products or services, or whether they are so unique that you cannnot do without them. As one would expect, there are many examples of the latter.

Cost flexibility relates to the level of ease with which adjustments within the product & service offerings can be made. Can I swith easily from module A to module B – even when the total costs (and revenue for the selling vendor) goes down? Can I opt for a subset of the total universe on offer, instead of having to buy “everything”?

In summary, the Features indicate what market data vendors offer, whereas the Characteristics are about what you, as a Market Data Manager, can do to steer and to influence them, in order to find the optimum for your institution.

In following blogs I will explore each of the Cs in more detail.