Opening Cross: When It Comes to Data Costs, Are We All April Fools?

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As Inside Market Data goes to press, we’re hearing sensational rumors of a top-secret summit between all participants across the market data industry, to address the rising cost and complexity of market data. Sources say that at this summit, exchanges agreed to make commoditized price data available free of charge, and to charge only for value-added datasets and different tiers of connectivity and co-location, in addition to membership, execution and clearing and settlement fees; vendors agreed to make their price lists fully transparent; and representatives from data consumers among buy- and sell-side firms agreed to recognize the value of their data professionals and allocate them the personnel and budgets needed to manage data and contribute to growing their business.

April Fool, everybody! No, there was no secret summit, there were no such agreements, and firms still treat their data staff as costly barriers to making more profit, who are always trying to take away their Bloomberg terminals.

I’m not so naïve to think anyone gets into this business to be a charity. Everyone expects to make money—some from providing a service, others from taking that service and augmenting it with their own value, and others by using it to make profitable trades.

Of course, there’s a cost to managing, productizing and distributing data—which marketplaces pass on to clients. But applying this business case to other industries or circumstances—let’s take a bar, for example—leaves us flummoxed: “Wait, so I pay a cover charge at the door, and I also have to pay for my drinks at the bar, but now you want to charge me to look at the menu? And I have to pay more to get it before the guy next to me, because there’s limited liquidity behind the bar, and he could snap it all up first?”

While no one denies the value of market data, it’s a means to an end—that end being to trade, which markets also charge for. Value-added datasets are fair game for fees—though the new execution quality reports introduced by BATS Global Markets last week are free of charge—such as historical data, if a user wants to purchase a ready-made dataset, because (surprise!) you can’t just store data from your real-time feed yourself, because legally you don’t “own” that real-time data; you just rent it.

And rental fees aren’t cheap. For example, Bloomberg has raised its administration fee for distributing Nasdaq Level 1 data via its terminals by 50 percent. April Foo— … er, no, that one’s actually real. Yes, it’s only $1 extra, but with thousands of users, that adds up fast, and firms say the rise is unjustified since it doesn’t reflect an increase in costs for Bloomberg.

Keeping on top of the plethora of policies is hard enough, which is exacerbated by the fact that few exchanges have the same policies or use the same language. The same exchange can describe “subscriber” as an individual or device in one document, yet use it to describe an entire enterprise in another. Several vendors and consultants are addressing this with standardized policy databases designed to clarify contract terms, while industry association FISD’s Consumer Constituency Group has begun an initiative to create clear summaries of contracts. And while the move has support among consumers, the ability to compare like-for-like services against their rivals may leave exchanges and vendors feeling threatened. Also, as one consultant said, “Deciphering these contracts is my job—why would I support something that helps people do this themselves, without paying for my assistance?”

The underlying complexity pervading the modern world—for example, the fact that cell phones have more processing power than room-sized supercomputers of days gone by—is ultimately designed to make life simpler and more productive. Yet in our industry, as marketplaces become more complex, so too do the policies and administrative procedures around them, when, if anything, they need to be simplified. Maybe I’m just naïve? Or maybe the April Fool joke’s on all of us.

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