Opening Cross: Data’s Value Is in the Delivery; Delivery’s Value Is in the Data

This week’s issue of Inside Market Data contains several stories in the “Delivery Technologies” category—which shouldn’t be a big surprise given the broad spectrum of services it covers, from messaging infrastructures to global networks, latency monitoring and hardware acceleration. But it also demonstrates how dependent data itself has become on technology, blurring the line between which deserves the greater focus. Which is more important—content or capabilities? After all, a stale price is still a price; the wrong price delivered at light speed is still wrong.

The two factions exist in a symbiotic—or perhaps mutually antagonistic—relationship, with each driving the evolution of the other. For example, the World Federation of Exchanges last week reported that the number of derivatives contracts traded on exchanges worldwide rose by two billion contracts to 24 billion in 2011. Rising data volumes lead to demand for more capacity—prompting providers of network technologies such as TMX Atrium and IPC to upgrade their bandwidth to handle the traffic—and for new ways of filtering out “noise,” and for getting the fastest access to the most important information, such as Japanese hosting provider KVH setting up proximity hosting capabilities in Korean technology vendor Koscom’s new datacenter for  traders wanting low-latency access to the Korea Exchange, which consistently trades the most derivatives contracts.

The flip side of this is that the market discovers new ways to find value and create new types of data and financial products that create their own value, whether it be calculating pan-European best bid and offer feeds, creating sentiment scores or numerical values for events to new indexes or exchange-traded funds that offer low-risk exposure to new marketplaces. Last year, index and ETF derivatives grew by 10 percent, according to the WFE, driving demand for more ETFs, more customizable indexes, and of course, more data on them all.

At an event hosted by Rimes Technologies and Nasdaq last week, Rimes global head of data management solutions Steve Cheng noted that while asset managers plan to increase their index use, the sheer number and complexity of these indexes is also growing. Hence we see the creation of new indexes to serve very specific functions, such as FTSE’s launch last week of carbon strategy indexes—which weight companies in the index according to potential future “carbon risk”—specifically for Australia, Europe and Japan.

But this increase causes a management burden for both their creators and consumers, with index providers seeking ways to monetize their IP and consumers feeling locked-in to different providers and benchmarks—something that may grow as indexes become more complex and harder to replicate and displace.

And as data becomes more diverse and complex, clients need equally diverse and complex tools to analyze it, such as Fidessa’s Fragmentation Index, which the vendor last week expanded with a Japanese-language version to analyze trading activity across Japanese stocks.

So how can we find the right balance of content and tools that enable it? At the Rimes-Nasdaq event, Cheng said asset managers must “move to a position where they are managing money, not data,” meaning that they need sophisticated technologies that support data and make investment strategies work, but shouldn’t have to build them in-house. On the other hand, viewing data and technologies as services can pigeonhole them as costs, whereas viewing them as an investment can force users to think entrepreneurially about how they can leverage and exploit assets. But that leads to a whole other debate around “buy versus build”—the topic of this week’s Open Platform, which argues that the sweet spot can be found in partnership rather than either extreme.

Maybe we should view data and delivery technologies in the same way, acknowledging that not only are they complementary, but are only truly valuable when taken together, and will evolve together to become ever-more intertwined in future.