They say it takes money to make money. Not strictly true, as many an entrepreneur will tell you, but it demonstrates the point that it is much easier to achieve something when you’re already part of the way there.
For example, with attention turning to pricing over-the-counter and illiquid instruments in a more real-time manner, who better to develop a streaming terminal for OTC data than pricing and risk management software vendor SuperDerivatives, which already prices many of the assets in question, and already receives input data at a higher frequency than it currently distributes derived prices. Hence, because SuperDerivatives has much of the required data already in place, it is easier and less expensive to take the next logical step in development—and indeed, to recognize that next step in the first place.
Similarly, Thomson Reuters last week unveiled a text analysis service developed by its StarMine division to create default probability scores that assess a company’s creditworthiness based on analysis of documents including news stories and financial statements. Were StarMine and the vendor at large not already involved in machine-readable text analysis—though officials say there was no overlap between this development and its machine-readable news and sentiment analytics for algorithmic traders—this opportunity to do something different with data that the vendor already had lying around in-house may never have been spotted.
Likewise, since acquiring machine-readable event data provider RapiData, Nasdaq has been flaunting the feed—renamed the Event-Driven Analytics feed—and making it available in new locations, most recently its primary datacenter in Carteret, NJ. In short, once it had the data, how Nasdaq hose to leverage the EDA feed was limited only by client demand and its own imagination—and in fact, the exchange is already imagining new ways to expand the existing content in EDA. Meanwhile, Standard & Poor’s Indian ratings and research subsidiary Crisil is exploring the potential to expand its proprietary content and analytics, leveraging its acquisition of UK-based analytics provider Coalition, to—like Nasdaq—create an offering with broader appeal.
But, speaking of limiting factors, what about when you don’t have something that is becoming increasingly important to your clients—such as the ability to trade via data terminals? As discussed elsewhere in this week’s issue, if prospective clients say they need something, you have to deliver, even if that means partnering with unlikely bedfellows.
“As traditional ISVs add charts, analytics and algorithms, traditional analytics vendors have to add trading to their front-ends,” says Mike Glista, director of trade routing at CQG and vice president of Continuum, the division that provides enterprise data connectivity and trading APIs to clients—including other vendors. “Something that isn’t integrated just doesn’t work.”
This particular issue is largely—though not exclusively—driven by the need to reduce costs by cutting back overlapping products. Why have a data terminal and a trading screen that also contains the data—which attract separate fees—when one will do. And chances are—assuming a reasonably competent level of content and analytics on the trading platform—you’d pick the one with the ability to trade. Another reason for picking this would be that some exchanges waive data fees when market data is included in a trading system rather than just a view-only display, to incentivize trading, because they know they’ll make money from incoming order flow—which also plays to a firm’s cost management needs.
And against the current economic backdrop, these kinds of circumstances are bound to hand an advantage to the company that can be the first to deliver what clients need. And the companies usually best positioned to achieve that are those with skin already in the game.
So the moral of this story is: if you’ve got it, flaunt it. And if you haven’t got it, get it!
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