Opening Cross: Location, Location, Consolidation and Diversification

max-bowie

Today’s data industry certainly isn’t that of 25 years ago, or even a dozen years ago when I started writing about it. A key difference is the change in pace of modern markets, shifting to low-latency trading where location—i.e. proximity of trading servers to an exchange or trading venue—becomes as important as the trading strategy itself. Another is the attrition and consolidation that has taken place since, reducing once-titans to mere business lines within larger organizations. And yet another is how the remaining players have diversified their businesses to take advantage of new revenue streams, and in some cases, simply to survive.

At the same time, exchanges have gone from supplying vendors to providing data direct to clients, and are constantly building added-value datasets and analytics, and placing more emphasis on increasing market data revenues as a means of diversifying their income in the face of lower volatility and trading volumes, which are driving them to seek out new sources of income to make up for lower revenues elsewhere, according to new a report by Burton-Taylor International Consulting and Porter Walford Consulting. For example, in recent weeks, Deutsche Börse unveiled a new options liquidity indicator for the most-traded options on its Eurex derivatives exchange, while Austria’s Wiener Börse struck an agreement to license and distribute market data from Croatia’s Zagreb Stock Exchange—another step in Wiener Börse’s diversification strategy of becoming a hub for market data from Central and Eastern European markets.

Being a hub for lesser-known datasets is also a strategy adopted by financial search engine Quandl, which has amassed 10 million time-series economic and financial datasets since launching last year, and is now on a mission to include premium, fee-liable content, which it began with fundamental data from Zacks Investment Research, and most recently expanded with options data from Option Research and Technology Services.

Likewise, telecom, network and hosting provider BT is diversifying its trader turrets to provide greater levels of data integration—rather than just being a telephone for traders—and expand the usage of its tools among buy-side traders, with the rollout of its Netrix HiTouch turret in Asia.

Meanwhile, Perseus Telecom is diversifying its High Precision Time clock synchronization service to provide a lower tier of service that can be used by a much broader base of end users within and outside financial services—ranging from less latency sensitive broker-dealers to developers in other industries—to maintain minimal (though not nanosecond-level) clock drift and ensure compliance with new regulations that govern time synchronization across financial markets to support trade reporting and audit trail initiatives that depend on an accurate time source across all trade messages.

But diversifying a business can be a big step that requires much in the way of new resources, planning and people—usually ahead of any cash injection from the revenue that a diversification strategy is expected to generate. So how can a company pursue that strategy without over-burdening itself with people and infrastructure costs? Just as companies now use elastic cloud computing resources to perform on-demand processing and intensive data calculation tasks, they can also engage flexible staffing resources to help expand their sales activities. For example, microwave-based low-latency datafeed provider Quincy Data has engaged USAM Group—the outsourced sales agency set up by former NYSE Technologies exec Feargal O’Sullivan to assist startup data and financial technology vendors—to expand its sales function to respond to new business opportunities using experienced industry professionals without having to find and recruit the right people in-house.

In many cases, diversification is as much a destination as it is a starting point on the road to new sources of success. And how you get to that starting point is itself the first step on that road to success through diversification.

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