Opening Cross: Competition and Cooperation: Keep Your Friends Close and Your Rivals Closer

Given the often-fierce turf wars between vendors, brokers and exchanges over the years—not to mention the consumer firms seeking any advantage over their rivals—it’s hard to imagine them cooperating in a civilized manner. Yet—increasingly, it seems—that’s exactly what companies are having to do to respond to opportunities in a changing environment.

After all, end-users have for many years realized the benefits of cooperating with rivals via consumer groups, allying against common problems posed by commercial relationships with vendors and exchanges. And now they expect their suppliers to do the same and figure out how to work together to deliver better service.

Often, these arrangements between suppliers are created from mutual self-interest. For example, the Abu Dhabi Securities Exchange signed a memorandum of understanding with real estate data provider REIDIN to jointly improve and develop the real estate price, trend and index data available to investors, whereby the exchange adds a string to its bow while keeping investors happy, and REIDIN gains access to a broader potential client base.

Then there are cases of even stranger bedfellows, such as Deutsche Börse and CME Group, which have competed vigorously over the Chicago markets. Yet last week, Deutsche Börse’s Need to Know News subsidiary announced that trading firms can now access its AlphaFlash algorithmic news feed from one of CME’s Chicago datacenters. The fact is that people want their information available where they trade, leading to growth of the datacenter marketplace, and also establishing exchanges as hubs for more than just order flow, as Chris Pickles described in last issue’s Open Platform.

One reason for the willingness of exchanges to embrace new models to generate or share in revenues is no doubt a still-uneasy economic climate. Though recent Q1 financial statements from exchanges remain definitely healthy, many have reported revenue declines—such as the Chicago Board Options Exchange and NYSE Euronext, which both reported results last week. And in most cases, market data revenues have been a star-performing area, delivering revenue increases—except in the case of NYSE Euronext, for which data revenues actually declined from a year ago, and IntercontinentalExchange, which managed to grow both market data and total revenues by 23 percent and 9 percent, respectively.

In future, the ability to continue growing data revenues will depend on a deep understanding of the market data industry to leverage every possible area of potential gain. And achieving that deep understanding is one of the objectives of data industry association FISD’s Financial Information Associate certification program, which last week released an updated syllabus and examination featuring an expanded database of test questions developed by FISD with a curriculum committee comprising nine industry experts.

Certification program director David Anderson says the FIA exam is not just being used by individuals at consumer firms to demonstrate their abilities, but increasingly by vendor firms—some of whom are incorporating the certification into their staff development programs—seeking a better understanding of all the competitive issues affecting their potential clients, no doubt so they can better sell their own services to them.

Of course, the qualification serves a much broader purpose as an industry-wide qualification. Why, you may ask, would people give up their time to devise something so time-consuming? Not just out of self-interest (“I’m better qualified—pick me! Pick me!”), but to bring standards to a subjective area that should ultimately benefit all participants. Because the more you cooperate on the simple things, the more likely you are to contribute to creating a fair and level playing field, and the better you can compete on what really adds value.