Opening Cross: The Challenge of Achieving True Data Transparency


Transparency has been a focus for regulators and market participants in the wake of the financial crisis as they try to combat the potential impact of illiquid assets and imperfect market structures. And transparency—albeit of a different sort—was also a focus for speakers at the European Financial Information Summit in London on Sept. 16, where panelists repeatedly raised the notion of data transparency.

Specifically, speakers cited the need for transparent processes for managing data, and transparent cost models to allocate costs to business lines so as to make users aware of the costs they incur—not only the price of an application or service, but also the cost of shared resources such as networks and hardware required to support it, and by how many staff in each department use a service. This not only makes users more aware of the costs they incur to the business, but also makes them more proactive about managing costs, speakers said, and reduces frustration with opaque recharges.

Yet despite end-user speakers’ focus on transparency in their businesses, one area still lacking transparency is exchange data contracts, which Rafah Hanna, partner at consultancy Datacontent, said are often “revenue-driven, not transparency-driven” in a presentation urging the creation of an independent body for standardizing exchange data contracts.

Given regulators’ focus on ensuring transparency in the markets themselves, the fact that there is so little transparency around data costs and policies is still somewhat shocking. Though exchanges in the US must obtain Securities and Exchange Commission approval for any new fee-liable service, the process is generally viewed as a rubber stamp, while European regulators’ attempts to limit the cost of obtaining a pan-European view of the markets is limited to prescribing that a consolidated tape must be provided at “reasonable cost”—but without defining what constitutes a “reasonable cost.”

It’s hardly shocking that over the years, exchanges have developed different policies, contract terms and definitions, but it is surprising that they aren’t desperate to standardize these. End-users have attempted to cajole exchanges into some level of harmonization, since end-users bear the brunt of interpreting and managing a multitude of different contracts. Maybe exchanges don’t care about the challenge for their clients of doing business with competing markets. But surely end-users aren’t the only ones who would benefit from standardization. Think of the legal fees every exchange would save by having a standard template adopted by the entire industry. Think of the benefits to emerging exchanges of being able to offer their data on terms with which potential clients in new markets are already familiar. Perhaps some exchanges fear that simpler contracts might make it simpler to directly compare and switch exchange data supplier. Or perhaps they fear that standards might impact audit recoveries—though surely the time and money saved would generally outweigh these, while easy-to-understand contracts would reduce the amount of accidental under-reporting, hence still generating the same revenues, minus any punitive fines.

This won’t be easy, but it isn’t impossible. For an example of where exchanges and other market participants have cooperated to create a standard that makes doing business more efficient (not to mention cheaper), look no further than the FIX Protocol: instead of each market having a different routing protocol requiring traders to use different interfaces for each exchange, FIX provided a standard that could replace the costs of using and maintaining multiple proprietary protocols.

The World Federation of Exchanges—whose stated mission is to “promote market standards” and “help newer, smaller exchanges to meet WFE standards”—is becoming more active on standards around cyber security and information protection. So perhaps the WFE could turn its attention to standardization of contracts and policies, reducing the need for end-users or individual exchanges to carry the bulk of the burden.

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