The age-old challenge of managing market data becomes even harder in an increasingly hostile and complex environment. Ron Troy, former associate director of market data at WestLB in New York, sets out the key issues, and offers some suggestions for weathering the storm.
Managing market data while we descend into a deep recession creates a multi-faceted dilemma, pitting end-users of data against corporate management and data providers-both vendors and exchanges-with market data managers caught in the middle.
Corporate managers press us to cut costs, seldom understanding where the market data budget goes or what the market data staff does. Many don't understand the risks associated with excessive cost cutting-that their cuts may cost more then they save. They don't understand the accounting or contracts, and may prefer to ignore exchange or vendor compliance requirements.
They arbitrarily cut staff and reassign highly specialized market data functions to areas like corporate purchasing, undermining users' ability to trade, manage portfolios, serve clients and manage risk. Users may actually need more, lower-latency data, tagged news, credit data and incisive commentary, something that we as market data managers must recognize.
Users must be confident that we understand their business needs and are their subject matter experts and partners. They need to include us when planning for projects or business requiring market data, so we can help them source the right data while building in compliance and controlling costs.
With so much cost cutting going on now, providers are trying to stem a downward trend in revenue. Some establish pricing schemes that are problematic. Contracts I've encountered recently are priced very differently to those of several years ago. Back then, if we had three users for a service, we paid for three. Now, many contracts have a base quantity of users per service, frequently five, even if only one user needs that service. The base fee is high, but the fee per additional user is low. It takes away the incentive to cheat, but small firms or departments pay the price.
Another vendor tactic is to dissect customers into increasingly smaller parts. A contract that formerly covered all of a firm's users in one country splits into divisional or departmental contracts. Each entity pays the base fee for a given service, greatly increasing the vendor revenue, unless we drop the service.
These cost pressures have led to increasing unauthorized use of services. While we train and pressure businesses to understand and honor contract terms, sooner or later, some try to save money by bending or stretching the rules-for example, by ordering a service for one user, and then sharing that access among several users, each on their own PC. Sometimes, though, the vendor can see the network address each user logs in from, and calls the market data manager asking how one user has so many PCs. Or, a firm might order a data terminal for a developer, who uses that terminal to populate systems or Web sites viewed by numerous internal or external clients. It's harder for vendors to spot, but when they do, a lawsuit is more likely then a phone call.
Providers aren't naïve-they know that theft of their services (intentional or not) exists, and they closely examine entitlements reports, ask lots of questions, and audit. Vendors' attorneys and finance staff are busy rewriting contracts to ensure that users pay what is due, while their auditors are increasingly aggressive in seeking out unauthorized data usage.
There are some things that we can do in these difficult times, starting with getting our shops in order, and verifying everything in our inventory-preferably using systems such as MDM from MDSL or FITS from The Roberts Group (not spreadsheets!)-and keeping that inventory up to date.
We must understand our contracts, terms, and expiry and renewal dates. It helps to have a contract database. If we are new to a company and can't find some contracts, we reach out to vendors as quickly as possible. If we see ways to make a contract work better for us, we review it with our legal department. If we sign a new contract, we seek terms reflecting our needs, review it, finalize it with the businesses, then have attorneys review it with us and the vendor.
We look for unused services, by utilizing entitlement systems like Reuters' DACS, or usage measurement systems like Wombat/Harco's DART, or regular interviews with profiled users detailing what they really need and are willing to pay for.
We press HR staff to promptly tell us when users depart, so we avoid accidentally renewing their services, and we cut departed employee's access to any Web-based systems having proprietary data, trading systems, and communication systems to avoid legal or financial consequences.
We continuously track unused terminals and aggressively cancel what's not needed, using every trick that our contracts allow. One vendor with two-year contracts allows us-for a fee-to swap no-longer-needed terminals with long renewal dates for ones are still needed and have a short renewal date. Others offer discounted buyouts.
We still need to maintain good relations with our vendors. We must develop reputations for honesty and competence, and partner-rather than fight-with vendors.
Finally, firms should join and be active in organizations such as FISD, where financial institutions and data vendors come together to work out issues.
Dan DeFrancesco makes his return to the podcast to talk about bitcoin futures and why he wanted to start this podcast in the first place.Subscribe to Weekly Wrap emails