Max Bowie: The Price Is Never Right

No one likes having to pay for things, right? Despite having huge amounts of money at their fingertips, the financial industry is no exception. Market data and trading technology professionals at the largest firms may spend hundreds of millions of dollars per year on content and delivery, but anyone worth their salt is always looking for ways to reduce that spend—not just so their firm can save money overall, but also so they have spare cash to spend on more data and services—and the recession’s effect on budgets over recent years has only intensified that focus.

Years ago, firms simply picked what they believed to be the best terminal or datafeed and gave it to all their staff, to ensure quality and consistency. Then when their costs ballooned, firms took a closer look and found ways to conserve, banning premium services from certain off-trading floor areas—for example, only using end-of-day prices (much cheaper!) for valuing portfolios, or just trade data, rather than more expensive real-time quotes, for risk or position management.

Then they focused on the front office, using increasingly sophisticated techniques and software to monitor individual data consumption to determine who was making full use of the services they were paying for, and who could be downgraded to cheaper ones.

End-user firms aren’t the only ones minding their data costs. Advocacy group NetCoalition has been focused on exchange pricing policies and recently brought a lawsuit against the Securities Exchange Commission (SEC), which approves exchange data fees based on certain criteria. In this case, the US Court of Appeals for the District of Columbia last month accepted part of NetCoalition’s argument and ordered the SEC to review its approval of the New York Stock Exchange’s (NYSE’s) fees for its ArcaBook market depth product, on the basis that the SEC did not properly assess whether NYSE’s fees were “fair and reasonable.” The impact of this on NYSE and its fees is not yet clear. We may see lower fees in the future, but other exchanges say the uncertainty arising from this kind of action will discourage them from developing proprietary depth products—less revenue, but fewer headaches.

Reality Bites
Of course, vendors and exchanges always claim to work with clients to make their services as cheap as possible. For example, Chicago-based Barchart is incorporating trading functionality into its market data workstation, partly because clients want the ability to trade, but also in part because it will help cut costs for end users, since futures exchanges waive data fees for prices displayed in trading applications rather than view-only devices. Mark Haraburda, managing director of sales and business development at Barchart, says the move will allow the vendor to compete with trading systems vendors that also offer pricing and analytics and have been able to price their services cheaper because the trading component allows users to avoid exchange data fees.

However, end-users still frequently complain of hidden charges, new fees for old data, and opaque pricing—“We never even see a proper price list from some vendors,” says one data manager.

But it’s just money, right? And banks have plenty of it, right? They complain about rising costs, but in the end they suck it up and write the checks … right? Not necessarily. At Inside Market Data’s New York conference in May, one panelist described how the year before, their bank had overlooked some fine print and missed a renewal date by a few days. Instead of dismissing it, the vendor in question demanded a new contract—on its terms. The bank reluctantly complied, but when that contract came due, cancelled the vendor’s services completely. The message: When times are tough, we need partners, not people who nickel-and-dime us.

I expect that philosophy to continue long after the industry drags itself clear from the crisis, and to become best practice going forward among those who see stability as an underlying factor for good planning, rather than a constraint on firms’ ability to be agile and flexible.