Opening Cross: For a Few Dollars More

It’s often said that no one ever starts their career wanting to work in market data, but rather that they end up there by accident. But what keeps them there, and what prompts entrepreneurs to set up businesses serving the market data industry? Ultimately, because they believe they can make money doing what they know.

Take RepRisk, for example, which spotted a way to create data points for how a company’s reputational risk impacts its stock price. Since late last year, SunGard, Interactive Data and now FactSet Research Systems have integrated the vendor’s data into their products, which should go some way to enhancing its own reputation and translating into steady revenues. FactSet is often cited by observers as delivering double-digit revenue growth. The vendor reported third-quarter fiscal year 2012 results last month, showing a 10 percent rise to $202.3 million for the quarter, with end-user numbers growing by 1,100 in the quarter to 48,400 in total.

Also last week, Interactive Data reported financial results—showing a 4 percent revenue rise for its Pricing & Reference Data business and a slight decline for its Trading Solutions division, with an overall rise of 2.3 percent to $221.2 million—while Chicago-based investment research and data vendor Morningstar reported a 3.1 percent revenue rise to $166 million for Q2, with its Morningstar Direct service growing almost 25 percent.

Exchanges also posted Q2 results last week: Nasdaq’s overall revenues were slightly down, though revenue from data products grew by 8 percent to $90 million, while CME Group also saw an overall drop in revenues from lower clearing and transaction fees, but doubled data revenues to $22 million from Q2 last year. In Europe, Deutsche Börse and Bolsas y Mercados Españoles both grew overall revenues by around 5 percent, though BME data revenues rose by more than 4 percent while Deutsche Börse’s dropped by 5 percent.

So market data is still a money-spinner. But vendors and exchanges are all having to work harder for those revenues: with the addressable market for data products shrinking as the financial services industry continues to cut headcount, companies must find new ways of delivering, analyzing and packaging data that make their services more invaluable and increase their use among clients, rather than relying on being able to win new clients.

For example, Chicago-based data technology vendor SpryWare has rebranded and broken out components of its former MIS ticker plant to raise awareness of its various capabilities among potential clients who may not realize that the vendor already offers what they are looking for.

Meanwhile, in the latency monitoring space, both Corvil and SeaNet Technologies have espoused the need to expand their services beyond basic latency measurement, to capture more data and offer more sophisticated analytics around order flow and trading activity, correlated to metrics like latency and network performance, to deliver more value.

But translating takeup into revenue is essential. And while rival Correlix gained momentum quickly, others questioned how its RaceTeam model would succeed, given its reliance on venture capital funding—especially since Nasdaq and Correlix recently cancelled their revenue-sharing agreement citing “lack of customer interest.” Ultimately, the doubters were proved correct, and TS-Associates has snapped up Correlix’s assets to bolster its own latency monitoring presence.

Deja vu? In 2008, when the latency monitoring space was far from exhausted, Trading Metrics folded after failing to attract sufficient sustainable revenues (IMD, Dec. 12, 2008). Its intellectual property and technology assets were eventually bought by Chicago-based Greenline Financial Technologies, which now offers them as part of a broader range of products.

In short, you may be able to make a fistful of dollars by starting out in a niche, but niches can go from good to bad and ugly quickly in these fast-paced markets, so diversification is key to making a few dollars more.