Market data is essential for businesses in a range of industries. Ensuring users in your organization have access to trusted market data sources is important for decision-making, risk mitigation, compliance, and maintaining a competitive edge. While essential, market data licenses are also expensive. Therefore, not only is market data essential, but market data management is essential too.
The problem is that market data management is challenging. In this blog, we are going to look in more detail at the importance of market data as well as the reasons why managing licenses and subscriptions is so challenging. We’ll also outline a solution – a solution that will enhance market data management and oversight while also reducing costs.
A Necessary but Significant Expense
Typical users of market data include those involved in:
- Banking
- Trading
- Research
- Analytics
- Financing
- Risk management
- Accounting
- Independent price verification
- Regulatory reporting groups
- Model development and stress testing
Furthermore, the need for good quality market data is only growing as business operations and structures become more digitalized and data-driven. For example, market data analytics is becoming more detailed and sophisticated, often powered by AI platforms and algorithms.
Then we come to the significant expense element, as licenses for the biggest vendors cost thousands of dollars per month per user. Scale that up across hundreds, thousands, or even tens of thousands of users, and you quickly get up to annual expenditures of several million dollars.
Constantly Moving Target
As well as being expensive, market data license costs are also variable. To start with, the type of market data and level of detail required by all the above types of users differ, often considerably.
Requirements also change. For example, the services previously required by a user may no longer be necessary because of a change in roles or responsibilities. People can also leave the organization, and organizational structures can change.
Compounding this is the fact that contracts with market data vendors typically renew automatically, while cancelling mid-term can result in expensive penalties, if it is even possible to cancel.
Why Market Data Management is So Difficult
Controlling and optimizing costs is important given the scale and complexity of the expenditure, but doing so is very difficult.
A lack of oversight is the main reason, as there is usually very little understanding of what licenses are being used, where, and to what extent. Getting this information manually (e.g., by surveying users) is time-consuming and almost always results in an incomplete and inaccurate picture.
One of the reasons for this is the fact that the purchasing, management, and distribution of market data licenses is often decentralized, ad hoc, and largely uncontrolled. In practice, this decentralized approach involves teams sourcing market data licenses individually, often from different vendors and without a joined-up data or purchasing strategy.
All these realities lead to increased costs and management inefficiencies. If this sounds familiar, you are not alone.
You then have to consider the fact that the challenges are often impossible to overcome using manual methods.
And this is all before you start looking at the data consistency problems that exist – problems that present operational and regulatory difficulties. Or the additional compliance issues that can also arise if fees for under-utilized licenses are being erroneously charged to clients.
Market Data Management Objectives
To address the issues outlined above and realise the benefits, it is important to first define the objectives. Those objectives should include:
- Centralizing market data license management and purchasing decisions, including vendor selection and contract negotiations. By centralizing management and decision-making, you will enhance your negotiating position with vendors.
- Ensuring license allocations are right-fit, with duplicated and unused subscriptions eliminated and under-utilized licenses optimized. This will cut market data costs.
Steps to help you achieve these objectives include:
- Analysing how licences are currently used
- Moving users to more cost-effective sources of market data, where it is suitable to do so
- Optimizing how you leverage existing licenses
- Transferring duplicate and unused licenses to other users
- Cancelling duplicate and unused licenses that are not needed
The big question is how. Technology and expert support are the solution.
Optimizing Market Data Management
To achieve the objectives and progress through the steps outlined above, you need a single, comprehensive, and accurate view of the market data licenses in your organization. This should include how those licenses are being used.
Automated technologies, such as our solution at WatchPoint Finance, can give you this detailed oversight of how your organization is using its market data licenses. Staying with the example of our solution, the data on license utilization is collected in real-time with zero impact on the productivity of your users.
That data is then used to produce a report explaining your current position and where cost, operational, and compliance improvements can be made. For example, it will highlight the licenses that should be cancelled, the under-utilized licenses that should be addressed, and areas where lower-cost options can be implemented. The report will also identify where there are client billing error risks, so they can also be rectified.
Transforming Market Data Management
The solution to optimizing market data management is data, i.e., data on how users utilize the licenses that have been allocated to them. By getting control of market data in your organization and cutting costs where reductions can be made, you will end up with a solution that is the right fit for your organization. In other words, licenses allocated in a way that maximizes value with full audit trail transparency. Transforming market data management is possible with this approach.