Before reference data gained the recognition and senior-level sponsorship it deserved, reference data professionals struggled to obtain a share of the budget and to make their voices heard in the boardroom, despite under-investment in reference data contributing to failed and broken trades—essentially undoing all the hard work that the front office had done to develop sophisticated trading strategies and low-latency infrastructures.
Once management realized the extent of the problem and that poor reference data has a measurable impact on bottom-line performance, the situation changed, and now reference data management is taken seriously, with many firms appointing a chief data officer to oversee it.
But now, as market data costs continue to rise, market data execs are facing a similar dilemma: Despite being generally acknowledged as the third-biggest cost for financial firms, behind personnel and buildings, when budgets tightened in recent years, market data managers were given responsibility for slashing costs, but without being given the authority to pry expensive Bloomberg terminals and other premium services from traders’ grip.
A perennial complaint of market data professionals is that the front office—even today’s more cost- and license-conscious front-office—gets what it wants, so long as it can justify higher-cost products by bringing in revenues, and that market data staff are left to meet its demands, rather than the data experts being able to use that expertise and enforce a new data strategy that might be more affordable and even more effective.
Recently, market data staff may have felt a glimmer of hope, when the mainstream press reported that some banks were threatening wholesale replacements of their Bloomberg terminals. However, the stories struck me more as macho posturing than feasible strategy, and as far more likely to have been prompted by some political slight than by any serious discussion with the firms’ market data teams. So yet again, the business says “jump,” and the market data staff has to explain why everyone jumping at the same time doesn’t do anyone any good.
Many data professionals still feel overworked and undervalued—unempowered caretakers of data rather than data strategists. And with data fees charged by exchanges and index providers especially continuing to rise, wouldn’t their firms want to leverage that expertise to the fullest extent possible?
For example, this week we report on across-the-board fee increases at the Australian Securities Exchange, and the introduction of fees for the Nikkei 225 index, both of which have upset data managers at user firms, some of whom say they may reevaluate their use of ASX and Nikkei data as a result. But the truth is that such warnings are empty threats unless data managers are empowered to switch off a feed or a market once it crosses a price threshold, or unless traders are willing to put their money where their mouth is and boycott a market in solidarity with those forced to manage the rising data fees.
Unlikely, to be sure, especially in markets where there is one dominant marketplace or data source with little competition. After all, in markets where more competition exists, that competition should in theory keep prices… well, competitive, though the trend of late has been for suppliers to price services according to the highest price that the market will bear, with each provider justifying increases by saying that others are already doing it. And let’s face facts: that’s not dishonest or unethical. If anything, it would be irresponsible to shareholders if a for-profit entity didn’t set its prices as high as consumers are willing to pay. But to keep any provider honest, consumers must be able and willing to walk away and either buy elsewhere or forgo something. And that means giving data managers the authority—and front-office support—to make sourcing decisions that may impact business strategy. Because after all, your third-largest expense is already having a major impact on your business strategy.
Bill Murphy, CTO of Blackstone, once again joins the podcast to discuss the private equity firm's new offices, designed to house its innovations team.Subscribe to Weekly Wrap emails