Opening Cross: Adversity Breeds Innovation in the Market Data Wars

A week ago, I was cruising around the Mediterranean, my thoughts far from market data. A fascinating region with a broad range of cultures, the Med was the target for many would-be empires throughout the ages, from North Africa's invading Moors to Caesar's Roman Empire. And like competition among empire-builders in the financial markets today, conflict was the driving force behind innovation.

For example, in more recent history, British troops on Gibraltar withstood sieges from the Spanish army by digging tunnels and gun emplacements into the massive Rock of Gibraltar, providing protection and a vantage point from which to fire on their enemy, and invented a cannon that could tilt downwards to fire from an elevated position, as well as - in a bid to do the most damage with as little of their depleted arsenal as possible - exploding shells that were the precursor to shrapnel bombs.

Today, the battlegrounds are financial markets, and trading firms enlist armies of developers to invent the weapons with which they wage war against their rivals. And while the economy of the past few years has proved challenging for many firms, with tighter budgets restricting their ability to throw money at big projects, this has not stifled firms' innovative spirit. If, as they say, necessity is the mother of invention, then adversity is the spawning ground of innovation, forcing people to find new solutions to competitive pressures.

In some cases, this means looking at how a firm does business and changing processes if they can be done better. For example, London-based derivatives broker and financial spread-betting firm City Index has outsourced its market data usage reporting and administration function to consultancy Ballintrae to help manage the complex issues surrounding derived data licensing. The benefit of this change is twofold: First, City Index can utilize specialists with experience of many similar cases and a database of validated exchange policy information and interpretations, and second, the firm can redeploy the IT staff that previously performed the function in-house to focus on pursuing technology innovation around its trading platforms and supporting tools.

In other cases, it means using alternative services where suitable, such as Nasdaq's Basic feed of best-bid-and-offer and last sale data, which data display vendor Quodd is preparing to roll out after current and prospective clients alike expressed interest in the cut-price alternative to a full consolidated US equity time-and-sales feed.

It also means that firms are more willing to look at new technologies, some of which-such as hardware acceleration-have gained mainstream acceptance despite the downturn. After a tough 2009, "People are doing cool things again," says Barry Thompson, chief technology officer at hardware messaging infrastructure vendor Tervela. One player taking advantage of this is Celoxica, a UK-based provider of hardware-accelerated feed handlers, which has built up a client base and pipeline in the US, and is now making a direct play in the US market with a dedicated office to boost its local support, responding to what it perceives to be optimistic signs in the market and demonstrating the importance of another battlefield rule - "improvise, adapt and overcome."

Nowhere are these principles more important than in a competitive market such as Chicago, where we host our second Inside Market Data Chicago conference this Tuesday, Sept. 14, with a full day of panel discussions addressing everything from end-user data management strategies to low-latency issues and the evolving role of exchanges and trading venues, designed to help hone your warcraft and give you the tools to "unleash hell" in the battle for alpha.

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