Data providers profit from power
The necessity of market data in the AIFMD and MiFIR
regulatory age is unquestionable. As asset managers diversify into alternative
asset classes, the quantity and complexity of the data required is steadily
increasing. Meanwhile, pressures for transparency from both the regulators and
clients push managers towards disseminating data more rapidly and widely.
According to David Berry, an executive committee member of
IPUG – a pan-European organisation representing financial institutions that
consume data – proprietary data vendors such as exchanges have recognised that
their data is now indispensable and have subsequently introduced new licensing
requirements that narrowed the permitted usage of provided data sets.
Previously, licensing a data stream that covered a certain
swap execution facility, for example, would permit its usage across all arms of
an asset manager’s business. Now, separate use cases – such as information
sharing and especially redistribution – are separate licences that elicit
multiple charges for a single set of data.
A small amount of pressure, from what Berry terms as a
“monopolistic market model”, could be alleviated by initiatives from the
International Swaps and Derivatives Association (ISDA) and ESMA.
ISDA has already introduced market data invoicing
standardisation in an effort to reduce the administration cost of multiple
licences. ESMA has proposed a new centralised data source covering EMIR and
MiFIR compliance, offering a single access point as an alternative to
commercial data vendors, which “aims at making prices fair, reasonable and
non-discriminatory”.
Breaking the
spiral
With individual investment firms spending up to $25m on
market data, according to a study by Burton-Taylor International Consulting,
global market data spending is set to hit $27bn this year. The need to control
costs is therefore becoming increasingly important; fortunately firms do have
some options available to control their data budgets.
Alternative data providers, to exchanges and established
vendors, may be able to offer more competitive fees. Ones that license solely
by instrument, as opposed to by instrument and per business activity, would be
particularly attractive to asset managers, according to a study by consultancy
Accenture. By taking data on single payment (rather than usage) basis, firms
can avoid paying ongoing costs.
Accenture advises against consolidating data supply in a single or few vendors, which has been fashionable in the past, as doing so may remove the leverage a company has to negotiate lower prices.
Instead,
investment firms should look for multiple data sources, and identify which
datasets are absolutely necessary and which are merely nice to have. Minimising
unused or superfluous data can be a relatively painless process, with some
investment banks reporting a 20% reduction in spending on market data
management through simply reducing the costs incurred by spreading data too
widely.
In addition to the rising cost of data licences, a secondary cost that is often overlooked is the human one of utilising data.
According to a study by Cutter Associates, on average 75% of non-license data costs arise from the team necessary to manage incoming data, with team size increasing to deal with both the volume and differing sources and formats of information.
As
managers reach further afield to alternative or third-party data sources, data
must be cleansed (bought into a common format) so that comparisons can made
clearly.
Cutter Associates recommends working to optimise license spending first, and then turning towards the other hidden costs by actively managing non-license costs. Its steps include centralising market data management in order to minimise usage redundancy, while evaluating whether each source provides an adequate source of information.
Outsourcing market data
management services to middle/back office service providers and custodians can
also be effective, with significant cost savings reported by firms following
this route.
Asset manager
unrest
Asset managers have been reluctant to name and shame particular vendors for fear of more aggressive checks on compliance.
The data
providers contacted for this article declined to comment. But a Portuguese
association of investors, the ATM Associação de Investidores, which is made up
of various European user groups, is so riled up by the issue it launched a
petition to stop market data fees on 6 January this year.
While the petition’s 935 supporters advocate the complete elimination of fees – a rather radical goal – their complaints echo other market participants in identifying the monopolistic position of exchanges and other data vendors as a major problem for fair data provision.
Accusing vendors
of promoting a “climate of fear” leaving little choice but acquiescing to
exchanges’ demands, the group say that vendors “abuse their enormous power by
forcing financial intermediaries and investors to pay costs extremely high for
feeds and
There is the hope of change approaching, though probably not the free data provision that the Portuguese petition demands. MIFID II, which is still undergoing implementation after the European Commission delayed its deadline to 2018, includes the requirement that pre and post-trade data be made available to the public on a “reasonable commercial basis”, although it has yet to define exactly what that means.
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