Considerations for selecting a market data-as-a-service provider: End-users weigh in

In late September, WatersTechnology and FactSet held an exclusive, off-the-record roundtable discussion focusing on how capital markets firms can make the business case for subscribing to market data-as-a-service solutions. The discussion featured opinions from tier one and tier two investment banks, a market-maker and a proprietary trading firm.

Prior to the event, all 12 firms that had accepted the invite were sent a three-question survey to gauge how much they were outsourcing their data management needs to a specific vendor or service provider. Although the survey was not specific to market data-as-a-service, eight of the 12 invitees spoke of the prevalence of managed data services as a whole. The results revealed:

• 75% already make use of a managed data service or services.

• 75% believe their firm will increase its use of managed data services going forward.

• Just under 90% see operational simplicity and reduced data management requirements as the primary benefit of a managed data service, as opposed to pure cost considerations.

Key themes and takeaways

• Wait and see: Consensus from attendees was that the market data-as-a-service model is still in its nascence and that capital markets firms are still in the “gradually” phase of its adoption. The “suddenly” phase is likely to follow within the next 12–18 months.

• Try before you buy: This issue was cited by a number of participants during the roundtable, and for good reason: proofs of concept (PoCs), where firms can familiarize themselves with the product or service for an extended period of time—up to six months in some cases—are now expected across the industry. One attendee was keen for their firm to establish a “sandbox” environment where it could “play” with the market data and develop an intimate understanding of the specific use-cases of the service. The reality is that most PoCs carried out by data and technology providers result in sales—unless the service in question is deemed unsuitable or substandard.

• Vendor lock-in: Capital markets firms raised vendor lock-in as a perennial issue when considering a relationship with a new data or technology provider. Firms are looking for collaboration and a genuine partnership, rather than a business arrangement underpinned by contractual obligations. They’re also looking for as much standardization as possible to ensure they can exit the relationship safely and without fuss.

• Responsiveness: The theme of vendor responsiveness—the speed and general amenability with which a service provider/vendor responds to clients’ inquiries/requests—was present throughout the hour-long discussion, highlighting just how important this issue is for all capital markets firms.

• Use-cases: Attendees suggested that market data-as-a-service providers identify clear use-cases for their data and/or services rather than approaching capital markets firms with a generic “take it or leave it” approach. Business strategies are built on specific use-cases and, without these, end-users are unlikely to commit to any new services. Services must also offer compelling added value, such as innovative technology or enterprise cloud access, to even be considered.

• Pricing: As expected, pure price considerations were cited as one of the key criteria driving firms’ buying decisions. All the research carried out by WatersTechnology over the past 12–18 months indicates that technical considerations and vendor flexibility, amenability and experience are more important to users than pure cost considerations. However, one of the tier one investment banks reported that cost considerations trump all others.

• Heavy lifting: Attendees unanimously agreed that the most significant benefit of having a managed data service is that the vendor/service provider takes care of all the “heavy lifting” with respect to data management, normalization and delivery.

• Vendor-agnostic or standardized data model: The word “utopia” was mentioned on several occasions during the session, most notably in connection with the industry settling on and adopting a standardized data model. The model’s objective is to rectify a range of user issues involving data consumption. Since the financial services industry doesn’t have a great track record of agreeing to and complying with standards, this issue is likely to always remain something of a pipe dream.

• Time-to-value: The speed with which capital markets firms can onboard new market data and feeds is one of the most notable advantages of a managed service, according to attendees. Capital markets firms are increasingly looking to minimize delays between signing contracts and activating the service in a live production environment.

• Licensing agreements: This is a huge issue for all capital markets firms. However, it is also important for firms to be able to fully understand the licensing agreements associated with such data, which can be a challenge even for the most experienced and well-resourced firms. Knowing what firms can and cannot do with the data they consume is far from a trivial task, and an area where vendors should look to provide clients with guidance.

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