Jan 27, 2022

Keeping market data spend in check is a major concern for investment managers, and we’ve seen firsthand the various techniques and strategies that firms employ to do so.

A recent Cutter member survey reveals that a top method for controlling cost is engaging business partners in demand management and spend review. But asking business partners to rationalize demand and evaluate the value of usage is easier said than done. Many business partners believe spend should be controlled during negotiations.

Market Data Administration (MDA) teams often struggle to explain to business managers and stakeholder why costs are so high – especially if they experienced lower market data costs at a prior organization. Comparing market data costs across competing organizations can be very difficult due to complex commercials and differences in organizational structures and demand.

In reality, unless the scope of services changes dramatically, it is very unlikely you will be able to reduce your spend. The best-case scenario is holding annual fee increases to 2% to 3%, but that isn’t always possible because firms don’t have much leverage unless they are willing to make radical changes to their services and source with alternative vendors.

But MDA teams at asset management firms can still collaborate with business partners to evaluate and control demand for services. While it’s easier to get decision-makers to more closely evaluate services when costs are allocated to their budget, it is still difficult for them to know which services are used by whom and how frequently. However, a few key things can be done to help decision-makers critically evaluate service demand, including the following:

  1. Provide transparent reporting and dashboards that allow the business to look at expenses by different dimensions ─ for example, by service, user, overlapping services, or terminals. Also beneficial are summaries of month-over-month and year-over-year changes in costs, services, and demand. Commercial MDA tools have become much more robust in providing reporting or API access to connect a business intelligence tool.
  2. Implement terminal and data usage monitoring tools such as TRG XMon, TRG DART, TRG ResearchMonitor, Crizit, or MMG Partners. This allows decision-makers to determine how terminals are used and to what extent. In some of the firms we work with, we have found users with multiple terminals because one provides a piece of data more timely or with perceived higher quality while the other is more comprehensively used. If decision-makers saw the frequency and costs associated with those use cases, they may work with the technology teams to find other ways gain access to that one piece of data.
  3. Identify an alternative data source to show savings that could be achieved. Unless you show decision-makers more cost-effective alternatives, it’s likely that they will simply expect vendors of a similar service to be similarly priced.
  4. Conduct an annual service survey that requires users to provide usage specifics and business justification for each subscribed service. Information can be correlated and given to the decision-makers in a consumable format to inform their service rationalization.

Most business partners lack the time to do significant analysis to ensure services are necessary in all cases. The more consumable information that the MDA teams can provide, the more likely business partners will identify rationalization opportunities. Engaging business partners to manage demand and spend is one of the most effective ways to control market data costs. Investing in tools to provide the transparency and inform decision-makers will offer significant savings in the long term.

Interested in learning more?

Read our MDA research and review our CutterCast, or contact us at connect@cutterassociates.com to speak with a Cutter consultant.