Opening Cross: From Startups and Dust-ups to Markups, Shakedowns and Breakdowns


Last week, I suggested that 2013 will be the year of the startup. This week, we bring you news of another new startup, Quandl, along with updates on recent startups MarketPsych and YCharts, and a stark comparison of the challenge faced by any startup seeking to compete with—or become one of—the “big” vendors, courtesy of Burton-Taylor International Consulting, in a preview of its upcoming report on the state of the data industry.

In the heavyweight ring, Bloomberg and Thomson Reuters are still slugging it out for market leadership, with Bloomberg landing some solid blows to win the 2012 round, seemingly bucking the overall trend of declines in desktop positions, though Thomson Reuters’ bulk and endurance, together with its new Eikon terminal, means the vendor is likely to come out swinging undaunted in round 2013.

The middleweight championship is proving more competitive, with Interactive Data coming under attack from fast-growing challengers such as FactSet Research Systems and Morningstar. And that’s not even counting S&P Capital IQ—which president Lou Eccleston likes to refer to as a “billion-dollar startup”—or financial technology giant SunGard, which last week acquired corporate actions processing software vendor XSP.

Interactive Data and Morningstar have also both grown through acquisition, but have a long way to go to rival the market shares of Thomson Reuters and Bloomberg. However, just as 2013 may prove to be the year of the startup, it may also be a year of acquisitions as established players in search of differentiating features look for novel datasets and technologies being developed by much smaller and younger companies.

One venture that has flourished after being bought by a bigger company is low-latency infrastructure provider MarketPrizm—originally created by the IT arm of alternative marketplace Chi-X, and sold to Colt Telecom in 2011. The vendor’s most recent deal is to supply Japanese trading platform SBI Japannext with prices from other exchanges for its own price formation and best execution purposes.

Yet the main challenge of this process is not capturing the data, but rather how it is used to create prices—as BATS Global Markets recently discovered, prompting the admission last week that a glitch had resulted in circumstances where short sale trades could be executed at or for less than the national best bid, while hidden orders could execute against peg orders being re-priced in response to a move in the NBBO. In news reports since, BATS has blamed the rising complexity of the US stock markets as a contributing factor to the incidents—though it should be noted that the exchange identified and owned up to the problem, and envisages a quick fix, whereas if similar problems were created by market participants themselves, identifying and fixing them could be a lengthy and fragmented process. This opens the door for hosted services to help firms meet their regulatory requirements: It’s true that the market is becoming more complex, and the fact is that regulation must become more complex as a result. Hence, for certain compliance functions, it makes more sense to have them performed centrally than separately by each firm, with everybody taking a different approach to achieve the same ends. Performing what you can at the doorstep of the marketplace itself—a regulatory “bouncer,” if you will—may not result in the most efficient execution environment, but it might just create the most compliant environment, and might also prevent party-flash-crashers from gaining entry.

With some traditional defense and military manufacturers predicting that their biggest areas in future may be cyber-security rather than battleships and bayonets, those involved in the centralization and aggregation of liquidity and data—i.e. marketplaces and vendors—may find their own business models evolving to create revenue lines from the very regulatory changes that many are now so wary of. Or perhaps this would be an area ripe for an enterprising startup?

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