Market Data Monopoly? - Part One
May 7, 2009
The provision of accurate and timely market data is truly the lifeblood of almost every financial services organisation worldwide. Every day these orgaisation rely on the latest stock prices, financial instrument attributes, corporate action events, rates and analytics in order to make trading decisions, reconcile their accounts and track their performance.
These requirements for a steady stream of vast quantities of data have give rise to a number of extremely successful market data organisations who collate their data from the exchanges and brokers and package it up so it can easily be consumed by banks, investment managers and anyone else who can afford to sign up for an account.
Two of the major players in the market data business are Bloomberg and Reuters. Their market data products are very similar and allow their clients to subscribe to market data feeds via several mechanisms, including ‘Pay-As-You-Go’ whereby you can make requests for information (eg prices and attributes) about a particular financial instrument (eg BHP Ordinary Shares) and they send back the details, for which you pay ‘Per Security’ - currently around $2(USD), depending on security tyep (Bond, Equity, Derivative, etc). Alternatively you can subscribe to entire segments of security data in a ‘batch’, for instance ‘Asian Equities’, and receive the entire universe of those securities daily. The choice of mechanism really depends on how many securities of a particular type the client needs data for and what the most cost effective mechanism is at the time.
The most common problem that subscribers to these market data services face is the degree to which ther are tied in to their provider and their ability to switch their services between providers when a ‘better’ deal can be struck with a competitor. Quite often the internal systems within the subscriber’s organisation have been designed to interface with a particular provider and mechanism - probably the provider/mechanism that offered the best deal when the systems were developed. Over time as more cost effective services become available or when data volumes increase to the point that the original mechanism is no longer cost effective the subscribers may wish to ‘replumb’ their feeds but cannot do so due to the high costs involved.
Lets illustrate this problem with a real life example….
Back in 2006 a large Australian investment management organisation in Sydney began a program of work to replatform their entire Front and Middle Office systems in order to ready themselves for their planned business strategy. This program involved integrating market data from Bloomberg and a number of smaller market data providers.
The initial release of the new platform involved relatively small volumes of financial instrument (security) data and therefore the Bloomberg Datalicense ‘Per Security’ mechanism offered the most flexible and cost-effective solution, allowing us to request the 1000 or so securities that we needed each day, incurring costs of around $2000/month - well within our budget.
One year later, during the next phase of the program we increased our security volumes to 8000, resulting in a significant increase in the month costs for market data from Bloomberg. At this point we were getting numerous calls from Reuters who wanted to pitch their market data services to us and were also looking at an alternative service from Bloomberg that would allow us to bulk buy data rather than paying ‘Per Security’.
<<To Be Continued>>
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