Responsibility Without Authority

Despite being generally acknowledged as the third-biggest cost for financial services firms, behind personnel and buildings, when budgets tightened in recent years, market data managers were given responsibility for slashing costs, but weren’t also given the authority to pry expensive Bloomberg terminals and other premium services from traders’ grip.

We’ve seen these kinds of challenges before: For example, just a dozen years ago, reference data professionals struggled to obtain a share of the budget and to make their voices heard in the boardroom, despite under-investment in reference data contributing to failed and broken trades—essentially undoing all the hard work that quants and engineers had done in the front office to develop sophisticated trading strategies and low-latency infrastructures.

However, once management realized that poor reference data has a measurable impact on bottom-line performance, the situation changed, and now reference data management is taken seriously, with many firms appointing a chief data officer to oversee it.

And while a chief data officer’s remit often technically covers market data, their roles are typically more concerned with data governance than data sourcing or finding ways to displace premium services with lower-cost alternatives to meet their budgets. A perennial complaint of market data professionals is that the front office—even today’s more cost- and license-conscious front office—gets what it wants, so long as it can justify higher-cost products by bringing in revenues, and that market data staff are left to meet its demands, rather than the data experts being able to use that expertise and enforce a new data strategy that might be more affordable and even more effective.

Thus, many data professionals still feel overworked and undervalued—caretakers of data rather than feeling empowered or encouraged to do anything strategic with it. And with data fees charged by exchanges and index providers especially continuing to rise, wouldn’t their firms want to leverage that expertise to the fullest extent possible?

Many data professionals still feel overworked and undervalued—caretakers of data rather than feeling empowered or encouraged to do anything strategic with it.

For example, Waters stablemate Inside Market Data recently reported on across-the-board fee increases at the Australian Securities Exchange, and the introduction of fees for the Nikkei 225 index (though Nikkei and distributor Thomson Reuters disagree on which party is charging the fees), both of which have upset data managers at banks and asset managers, some of whom say their firms may reevaluate their use of ASX and Nikkei data as a result. But the truth is that such warnings are empty threats without the backing of the front office. Unless data managers are empowered to switch off a feed or a market once it crosses a price threshold, or unless traders are willing to put their money where their mouth is and boycott a market or contract in solidarity with those forced to manage the rising data fees, nothing will change. 

Zero Competition

That’s unlikely, especially in markets where there is one dominant marketplace or data source with little competition. After all, in markets where more competition exists, that competition should in theory keep prices … well, competitive, though the trend of late has been for suppliers to price services according to the highest price that the market will bear, with each provider justifying their increases by saying that others are already doing it. 

And that’s not dishonest or unethical. If anything, it would be irresponsible to shareholders if a for-profit entity didn’t set its prices as high as consumers are willing to pay. But to keep any provider honest, consumers must be able and willing to walk away and either buy elsewhere or forgo something. And that means giving data managers the authority—and front-office support—to make sourcing decisions that may impact business strategy. Because after all, your third-largest expense is already having a major impact on your business strategy.