Opening Cross: The FAST and the Furious Pace of Change

Max Bowie, editor, Inside Market Data

If this week’s North American Financial Information Summit—being held this Tuesday, May 22 at the Marriott Marquis in New York—had a theme, it would be “change.” We live in a new economic reality fundamentally different from years gone by; the markets, and the way that firms interact with them, are changing; regulation is ever-evolving; and the nature of data itself is also changing.

This change is twofold: on one hand, as the most liquid markets become commoditized, their data—though still important—holds less inherent value than it used to. It is readily—and in many cases, freely—available, and these markets are already highly transparent, while data on over-the-counter and illiquid asset classes is becoming ever-more highly prized as traders seek the same levels of transparency as in the equity markets (for more on this topic, see this week’s Open Platform).

On the other hand, the fundamental nature of “data” is changing. Though ratings have come under fire in recent years, investors are again turning to these kinds of datasets—or at least, versions that apply different methodologies to provide more predictive results that offer a truer economic value of an asset, such as the recommendations derived from analysis of the footnotes to financial statements by equity research provider New Constructs (see story, this issue). Basically, what we think of as proprietary analytics and indicators—some of which have more in common with accounting and valuation practices than bid and offer prices—are in many cases becoming the new market data for the modern age.

For example, one of the most important factors when trading OTC assets is not which venue has the best price, but which has the most liquidity that will allow you to actually trade at that price. Hence, liquidity information is becoming an increasingly important dataset alongside price data itself. Last week, banking software vendor Fundtech released its Global Liquidity & Risk Management solution, while Gain Capital rolled out StreamBase Systems’ LiveView real-time analytics tool for liquidity optimization, and New York-based trading systems developer Broadway Technology will next month release liquidity aggregation solutions for interest-rate swap markets.

However, as the data that a trader must be aware of increases in volume, complexity and granularity—in part as a result of regulatory changes to increase transparency and increase reporting requirements—they also need new ways to slice through the noise to find the valuable nuggets of information lurking within, such as 9W Search’s financial search engine, or by applying data visualization and charting to new data displays, as CQG is doing with its Portfolio Monitors and spreadsheet displays.

And with this increase in volume, the industry will need to find new ways to not just analyze increasing volumes of data, but to also move it around without disruption. So it was surprising to learn that exchanges and the Options Price Reporting Authority are phasing out the bandwidth-reducing FIX-FAST Protocol, which compresses data for transmission, and was a godsend to options exchanges and trading firms struggling to distribute and consume rising options data volumes. Those close to the exchanges say that as bandwidth has become more plentiful, FAST’s compression algorithms are simply no longer needed, and exchanges are moving towards lower-latency binary protocols instead, such as Nasdaq OMX’s ITCH protocol, though others say the sudden concerted moves may have more to do with an ongoing lawsuit brought by a company called IXO/Realtime Data against many exchanges and vendors, alleging that their data dissemination protocols infringe its patents on data compression (IMD, Aug. 17, 2009).

Whatever the reason, the amount and frequency of data available to the market is unlikely to decline, so finding an alternative standard—or different alternatives for each marketplace—will be another example of change that the data industry will have to deal with.

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