Let’s face it: market data isn’t easy. Just because some data is commoditized doesn’t mean it isn’t complicated. If it were easy, there would be no need for specialists and consultants, or the “market data experts” within user firms who treat data management as a mix of art and science. A large part of this is because data management isn’t just a procurement process; it’s very much an ongoing relationship—between consumers, suppliers and the ever-changing nature of data itself—that, like any relationship, requires a lot of effort and understanding.
Speaking of complexity, let’s start with the Chicago Board Options Exchange and its Complex Order Book data: here, CBOE is doing something nice for data consumers by slashing its fees to use the data for non-professional investors and the brokers that serve them. Of course, CBOE hopes to gain as a result, through increased participation in its markets via spread trading—a simpler way to participate in the Complex Order Book, which is by definition “complex.” However, the exchange’s fees are also fairly complicated. Some are waived if you subscribe to another product. Some fees apply only to view-only terminals. I don’t mean to unfairly single out CBOE. If anything, these fees are actually fairly straightforward compared to some others.
This is why third-party specialists are so often required to interpret exchange policies, and why tools such as Ballintrae’s BERRD (Ballintrae Exchange Rules and Regulations Database) exist—to standardize explanations and implementations where no real standards exist, since competing exchanges tend not to cooperate on drafting standard policies and licensing documents, despite the efforts of groups such as FISD. And ultimately, it’s the reason for audits: if policies weren’t so complicated, no one would accidentally find themselves non-compliant—at least, so the argument goes.
Aside from contract complexity, data itself is becoming more complicated. For example, fundamental analysis provider YCharts has introduced a funds screening tool that officials say takes the complexity out of running complex screens on large amounts of data with complicated characteristics and relationships. And as data increases and becomes more sophisticated, the relationships between data also become more complicated.
And as data becomes more complex, so too does the relationship between consumers, suppliers and their data, which—again, like any relationship—requires the involvement of all participants if it is to remain healthy. No single party can be doing all the work while the others are complacent. And when parties reach an impasse—say, on contract negotiations—they all need to be prepared to compromise to meet in the middle. If the situation is not salvageable, they also need to be prepared to walk away. Too many consumers and suppliers remain in tense, loveless “marriages,” grumbling about each other, but neither prepared to make a clean break. Why? Sometimes it’s impossible to replace a service with comparable content. In fact, sometimes, it’s impossible. But either way, it can be a very complicated process to identify suitable services, let alone procure them. And frankly—especially assuming that firms are already using the most cost-effective services they can find—it can also be a costly process to find, review and implement other services, without even considering the internal cost of making everything work with the new data.
But then, that’s why firms employ data experts who are not just used to dealing with this complexity, but who thrive on seeking out the new and experimenting with alternatives. But with events such as falling oil prices and the Swiss franc uncoupling set to impact banks’ revenues, chances are that—instead of being given free rein to seek out alternatives—data managers will be told to tighten their belts even further, making it even harder to “walk away.” That’s when those experts’ relationship management skills will be in full effect. Perhaps there’ll be room in the budget for some counseling?
James talks about his trip to Chicago and some of the interesting topics that came up (including a look at disaster recovery demands). Then Anthony and James touch on ISDA's initial margin rules, with Phase 3 going live next year.Subscribe to Weekly Wrap emails