CutterAdvantEdge

Issue 70, September 2009

Get a Grip on Market Data Costs

Market Data Costs For the asset management firms of the CutterResearch consortia, managing market data means dealing with two primary concerns: reducing costs and maintaining or improving quality. But is it realistic to expect both? CutterResearch has uncovered some effective strategies that do improve the cost–benefit ratio, without the slash-and-burn approaches we’ve seen over the last twelve months.

Scrutinize data usage

Gone are the days when firms were willing to pay for “nice to have” data, or when an individual user could subscribe to data on their own, without going through a careful approvals process. Hard times mean taking a hard look at your market data to reveal where the real value is and where savings can be found. Specifically, firms need to perform a comprehensive inventory and analysis of their data usage, with strategic oversight for the process. Market Data IssuesA systematic assessment should uncover all data coming into the firm, who is using the data and how, and finally, whether the data is worth the cost. While firms still need multiple sources of pricing and ratings to ensure adequate coverage, a thorough analysis almost always reveals data sources that can be eliminated. The analysis can also uncover savings that should be easy to find but are still overlooked. For example, as firms trim staff, they need fewer data licenses. Firms that are fully aware of redundant licenses can notify vendors promptly and begin to realize savings immediately.

Make market and reference data a strategic priority

Consultant Insight More and more firms are managing market and reference data as a strategic priority. In a 2008 CutterBenchmarking study, half of firms had defined a key senior role for a Data Steward in their organizations. Firms are also creating centralized groups responsible for managing data assets across the organization—evaluating data sources, negotiating vendor contracts, approving user requests, and assuring timely delivery of high quality data. These groups, often part of the IT or Operations organizations, can be ideal, ready–made entities for leading the strategic market data inventory and analysis.

Partner with your data providers

Dealing with large providers of market data can be much different from dealing with other vendors. With application providers, for example, firms can usually negotiate on price, because vendors can build enhancement requests into their standard product and spread the cost over their whole client base. In contrast, large market data providers offer a universe of data but have no incentive to negotiate on cost. The price is fixed—take it or leave it. With most of the market data budget spent on data from the industry’s largest providers, the fixed prices have been a major roadblock to controlling the overall data budget.

But many firms have cut their market data budgets significantly and are scrutinizing their data usage—a trend that should continue for some time. Now, even the larger data providers are beginning to feel the pain from revenue loss. As a result, the vendors are becoming more flexible, more willing to work with customers to find creative ways to improve the value of their products—broadening their asset coverage, enhancing delivery methods, and increasing service offerings. Some are even offering to help clients analyze their data usage.

Use tools to control market data costs

In the entire industry, there are only four vendors of market data administration systems:

  • BST: FinOffice
  • MDSL: Market Data Manager (MDM)
  • Screen: INFOmatch
  • The Roberts Group: Financial Information Tracking System (FITS)

All of the available market data administration systems offer robust functionality for managing data providers—including managing contracts, tracking expenses and user inventory, reconciling vendor invoices, and producing reports. These applications are specifically designed to provide a detailed view into who is using what data and what the data costs—prerequisites for strategically controlling spending on market data. For the firm looking for transparency in their market data expenses, these systems offer a solution with an attractive return on investment.

The road ahead

The Road Ahead Going forward, what can we expect? Clearly, investment firms will continue the quest to reduce their market data costs, and data providers will see a corresponding reduction in revenue. Until the economy improves and firms increase their spending, providers will need to be creative in their offerings. Now could be a good time for investment managers to take advantage of these improved offerings—at a discount.