Opening Cross: Declare Your Independence from Traditional Data Uses

Take, for example, the Securities and Exchange Commission-mandated Consolidated Audit Trail covering US equities and options markets. The data that will be collected by the CAT serves no directly trading-related purpose. However, it will provide a crucial tool for market surveillance in the war against market abuse, and an accurate dataset for deeper analysis of trading activity, which should ultimately make it easier to perform post-mortem analysis on—and hopefully prevent future occurrences of—events such as the May 6, 2010 Flash Crash.

Or, take Chi-X Canada’s decision to use TickSmith to build a portal to sell historical trade and quote data. In the past, these datasets have been driven by traders building trading algorithms. Now, however, TickSmith is increasingly seeing demand coming from compliance organizations, and this demand is frequently for smaller datasets covering specific periods, says TickSmith chief executive Francis Wenzel, adding that not only do these clients want different data, but they also want different ways to access the data that allow them to obtain specific sub-sets and timeframes more easily.

The partnership between World’Vest Base and the Egyptian Islamic Finance Association to develop a sharia-compliant index of Egyptian Exchange-listed companies—and potentially similar indexes for other regions—serves a hat-trick of non-trading purposes: it provides a benchmark for asset managers adhering to Islamic finance principles, serves as a vehicle to attract investment from other countries in the region, and also helps promote wider familiarity with sharia-compliant investing.

Meanwhile, Informa Investment Solutions’ addition of Nasdaq OMX indexes to its fund management platforms was driven by the need to support client activities, such as performance and risk analysis, peer group analysis, style attribution, asset allocation and custom reporting.

Index data may not directly drive trades, but it contributes to them via the trading of related derivatives and exchange-traded funds. Indeed, the London Stock Exchange cited the predicted growth of passively-managed investments between now and 2020 for its purchase of US index provider Russell Investments. However, as more use cases emerge for indexes and their data, so too do more policies and licensing fees that govern how clients can use the data, and how much they must pay for it, contributing to rising overall costs for index data—as discussed in an Open Platform by StatPro chief executive Justin Wheatley, who suggests the industry is ripe for change.

Certainly ripe for change is the notion of who within an organization requires data. While banks have rationalized data services significantly by reducing reliance on premium, real-time data services outside the front office, the need for other data types to support all the above-described use cases continues to grow.

One could argue that all these uses ultimately indirectly support trading, whether the data is used for trading analysis, risk management, compliance, benchmarking and reporting, since all of these support the bigger picture of making money from trading. But one unforseen impact of the growth of using traditional datasets in non-traditional ways may be that as non-trading users gain greater influence over a growing chunk of firms’ data spend, the influence exerted by traders will be evened out, making it easier for data professionals to implement enterprise-wide data policies, and finally giving them an “independence day” from the trading organizations often perceived as receiving preferential treatment.