Opening Cross: Searching for New Data in a New World Order

Breaking news! I’m pleased to announce the launch of the Max Bowie swap execution facility, which I will start running in my spare time next year from the back room of my apartment in Queens. Now, I know what you’re thinking: Max doesn’t know the first thing about interest-rate swaps, and surely his SEF will get lost in the melee of all the other SEFs launched in the past week. Plus, the cost of connecting to Max’s SEF and licensing its no-doubt voluminous data in addition to all the other SEFs might break the budget.

As discussed at Inside Market Data’s recent European Financial Information Summit, while the new SEF rules contain cause for optimism—more transparency, less risk, tighter spreads, more competition—market participants still have concerns about the “massive implications” of the new setup for financial data. For example, SEFs take risk away from the counterparties to a bilateral swap trade, but concentrate risk around the clearing organizations acting as central counterparties—or potentially around a single SEF that dominates liquidity in a particular swap contract—while introducing new fees, reporting requirements, connectivity costs and contractual terms about how firms can use the data, who owns the intellectual property of data generated by SEFs, and how many new organizations firms will now have to negotiate with to obtain data on the instruments they are trading.

Firms long-frustrated at paying for exchange data resulting from their own trading activity are none too thrilled at the prospect of other organizations getting in on the same act, with one of the criticisms at the event being that it’s not the amount of data being created that will change (though some would dispute that)—just who users will get the data from.

However, outside the SEF world, the industry is hard at work creating new data, rather than just new ways of receiving it: For example, financial news startup Alliance News has rolled out a UK equities-focused newswire intended to fill the gap for targeted news left following the absorption of previous standalone news services into what ultimately became Thomson Reuters, and has inked a deal for its news to be carried on the London Stock Exchange’s Proquote UK equities-focused data and trading terminal.

But just as in the SEF world, IP and confidentiality issues can arise when starting new data services. For example, Credit Benchmark, which is gearing up to launch a service that creates consensus credit ratings from banks’ internal ratings, had to ensure it had at least three sources of ratings for every obligor so that no one could identify any individual firm’s rating. In this instance, it helped that co-founders Mark Faulkner and Donal Smith could demonstrate a history of handling sensitive information, such as in their previous roles at Data Explorers.

Adam Murphy, president and founder of New York-based mortgage-backed securities data provider Empirasign Strategies—which has just added Agency Fixed Rate Specified Offerings to its database—describes how he began gathering dealer offer lists and market color from publicly-distributed lists, while also signing up firms to contribute their prices directly, which he did by leveraging his old contact list from when he was an adjusted rate mortgage trader, offering equity stakes in his business, and in one case, parsing a firm’s email archive for free in return for being able to use the results to create a historical dataset of real-time prices.

This model—of sourcing data from contributors to create a dataset with much more total value than that of the individual firms’ data alone—isn’t new, but is now being used to create new forms of established data types that can be more accurate than their predecessors, which incorporate views from across the industry, and hence allow users to look at more granular subsets of data in new ways. And until SEFs start producing the promised levels of data, competition and transparency, new and more accurate data sources will be essential to navigating this changing financial landscape.