One of the biggest drivers of market data spend—or in some cases, the lack thereof—this year has been regulation, as firms delay major projects while they await details of what new laws will involve, then assess the impact on their operations, and figure out how to respond to and take advantage of any changes. So it was no surprise that regulation was one of the hot topics at last week’s Frankfurt Financial Information Summit.
One new regulation adopted earlier this year in Germany requires firms to provide product information sheets—known as PIBs—for every investment product, prompting the creation of PIB data services by SIX Telekurs and Interactive Data. But at the forefront of discussions were the draft proposals for the second iteration of the Markets in Financial Instruments Directive, which aims to bring the same competitive forces it prompted in 2007 for equities to other asset classes—though panelists were skeptical as to whether it will achieve this.
Once this and other initiatives extend to new assets, those markets will face the same challenges experienced by the equities and exchange-traded derivatives markets over the last decade. For example, while the most liquid energy commodity contracts are traded on exchanges such as Nymex and the IntercontinentalExchange, other contracts are still the domain of voice brokers and bilateral clearing arrangements. Changing the way commodities are traded will require a slew of changes not only across’ front-office data and trading infrastructures, but also to the way their middle- and back-office operations handle data for risk management and settlement—and canny vendors will be positioning themselves as agents of this change to help bring about the gains and efficiencies from trading practices now seen in other markets, which ultimately create more data generation and consumption.
And there does seem to be an uptick in activity around commodities data (see this week’s stories about OTC Global Holdings’ EOX division, and Updata’s new Morning Call service). Perhaps it’s just that the market is getting more play as firms seek new sources of alpha—“There’s more use than you would think of algorithmic trading among prop trading firms and hedge funds in energy markets, not just for hedging but also for speculative trading,” says Rob Garfield, senior vice president of business development at technical analysis software vendor Updata—or that the activity reflects the level of investment these markets require to catch up with other asset classes.
Ultimately, all the current regulatory initiatives seek to increase stability, transparency and competition. But in the data industry, where a large portion of user firms’ spend goes to a small number of large suppliers, sometimes it takes a different approach to shake things up.
One such approach is that of NYSE Technologies, which will announce today, Monday, Oct. 31, that it is open-sourcing its Middleware-Agnostic Messaging API (MAMA), the messaging component of the former Wombat data platform, to enable greater interoperability between different services by reducing the complexity of integration.
It’s not the first attempt to open up competition between data services and technologies using an open-source approach: Collaborative Software Initiative has already released its Market Data Abstraction Layer, which is designed to encourage competition by making it easier for firms to adopt new technologies and displace legacy services that may be heavily integrated into their workflow, without disrupting major data-related aspects of their operations.
But these initiatives depend on a critical mass of adoption to succeed—which I’m sure is one reason why NYSE enlisted a steering committee of clients, partners and rivals—whereas you don’t get a choice of whether or not to participate in regulations. Either way, the data industry will be there to make the most of opportunities generated by either type of initiative.
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