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Max Bowie, editor, Inside Market Data

Max Bowie: Vote for Democracy—Data Democracy!

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In politics and finance alike, incumbents that don’t live up to expectations are shown the door when their terms run out. With abstraction, virtualization and open-source technologies set to facilitate previously complex displacements, Max says vive la revolution!

With 2012 being an election year, politics are already dominating the US news headlines, with Republican candidates pitching how they would do things better, faster and cheaper than their rivals. Meanwhile, financial technology and market data providers are singing the same tune. In the current economy, you would expect this to be an easy sell—especially since some predict that 2012 will see more displacements as firms shake off the legacy infrastructures that creaked their way through the last few years of reduced spending following the financial crisis.

One reason for this—although some observers suggest that financial firms will delay making major investment decisions until the US elections are over, so they are aware of any policy changes that need to be taken into account—is cost: While market data fees from vendors and exchanges continue to rise—by 15 percent each in the case of CME Group and IntercontinentalExchange—budgets at most firms are still tight, forcing them to consider fewer or cheaper products.

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Virtualization, open-source technologies and abstraction layers make it easier for firms to chop-and-change providers and create true best-of-breed architectures.

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But aside from eliminating duplicative charges through ingenuity and good management policies, saving money costs money. The cost of buying something new, even if it’s cheaper than the incumbent, and the cost of resources to rip out the previous solution, can be daunting—not to mention the costs and time involved in evaluating and testing potential alternatives before settling on a replacement, and then bringing users up to speed. We do see regular replacement of technology or services in high-frequency trading, but that’s because the cost of investment can be outweighed by profits if you get it right.

Another reason for predicting a rash of displacements is that new developments exist now that did not in recent years—such as virtualization, open-source technologies and abstraction layers—which make it easier for firms to chop-and-change providers and create true best-of-breed architectures.

For example, Collaborative Software Initiative blazed a trail with its 2010 release of its Market Data Abstraction Layer (MDAL), which provides a separate interface layer between applications and infrastructures, allowing firms to replace heavily embedded components without disrupting their entire architecture. MDAL was created in partnership with some large user firms, but projects like this—though promising the ultimate reward of cost savings—can take a lot of cash to get off the ground, and time to get buy-in from a sufficient number of participants. For all the complaints about vendor lock-in, firms balk at the cost of supporting “open” standards whose advantages can be enjoyed by a firm and its rivals alike.

Hence more recently, vendors have hit on an ingenious idea: Create open-source abstraction layers based on technologies already heavily in use. NYSE Technologies began this in earnest last year by open-sourcing its MAMA Middleware-Agnostic Messaging API, dubbed OpenMAMA, in a bid to increase interoperability between other data sources and services, and enlisted the industry to contribute to the middleware’s future development.

And last month, Bloomberg announced that it will make the API used by its feed, file and desktop data products available under a free, “MIT-style” license, to provide an interface for data transfer between applications—and not just Bloomberg data or applications, but potentially as a generic interface that could be used between any systems, even by non-Bloomberg clients. This isn’t strictly open-sourcing, though the vendor says it hopes to make it a true open standard in future.

Are these initiatives just vendor lock-in with a twist? Once these vendors have penetrated every nook and cranny of the industry with free offerings, won’t they try to exploit that position with paid services? Maybe, but in the short term, at least, this is good news for users and the vendors—after all, one could argue that Bloomberg’s position as the premiere vendor, with matching price tag, makes it a prime target for displacement projects and that this initiative will mitigate the impact of any displacements. And though open APIs may make data infrastructures more flexible in the short term, ironically, they may cement these vendors’ positions even more rigidly in the long run.

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integration not easy...

The open sourcing of the various pieces of the jigsaw is very well, but it neglects (in my mind) the remaining advantage the big boys have. Namely that of a one stop shop How many 2nd tier or 3rd tier market data consumers will be able to dedicate time to create an integrated solution out of the pieces which is supportable and not reliant on one dedicated 'geek'. I won't even get to the contract management for data usage I suspect it is a big enough problem for the 1st tier consumers who may well have enough people to make it happen (at least for their middle and back office applications)

Posted by: Tom B Feb 25 2012

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