Opening Cross: The Best Things in Life Are Free… As Long as They’re Not Data

Who doesn’t love a bargain? Or, even better, getting stuff for free? Unfortunately, there isn’t much for free in the market data world, and—sure as death and taxes—even products that firms already pay for are bound to go up in price eventually.

This week, we report on two such instances: Nasdaq OMX is increasing the fees for its Nasdaq Basic low-cost consolidated tape alternative, while the London Stock Exchange is preparing to roll out the second set of price increases in six months.

One can’t entirely blame exchanges: after all, they are for-profit entities, and their aim is to make as much profit as market forces will support—indeed, Nasdaq officials point out that the exchange has not raised the price of Basic since its launch in 2009, and say the feed only breaks even at current price levels. But end-users say exchanges are raising fees beyond what a fair market would support, and are using market data fees to compensate for lower revenues from other business lines.

Brian Hyndman, senior vice president of global data products at Nasdaq, acknowledges that “It’s never a good time to increase fees,” as the exchange attempts to mitigate the impact of the 30 percent fee increase for Basic by pointing out that the product is saving the industry an estimated $30 million per year—though that figure may change after the increase.

But exchanges aren’t the only source of new fees: index providers are increasingly eyeing the usage of their indexes and index data to ensure that the underlying data and the benchmarks themselves are treated and monitored with the same care as real-time exchange data. And with vendors constantly launching new indexes to meet an ever-diversifying range of investment styles—for example, Markit last week launched a series of “ultrashort” iBoxx credit indexes—the sheer amount of benchmarks and associated data to be monitored continues to increase, as does the cost of acquiring and managing them for firms using the benchmarks (such as BlackRock, which has already licensed the Markit ultrashort indexes) and their associated data, which makes tools for monitoring and controlling these specific costs even more important. To address this need, Rimes Technologies is rolling out a Data Governance Service to track and monitor index benchmark usage within firms, to be able to establish and monitor who is using a benchmark—for example, which business areas are structuring investment products linked to a specific index—and its underlying data, much in the same way that inventory management software vendors have done in the market data space for years.

In fact, in an Open Platform published a year ago (IMD, Oct. 22, 2012), MDSL’s Steve Ellenberg describes the ongoing “period of discovery” by which firms are applying the same principles from market data management to index and index data management—which is essential since index providers have already gone through their own period of discovery and are protecting the intellectual property in their benchmarks in the same way as exchanges and other data providers.

Faced with the fact that fees will always go up, firms must either figure out how to make more money from the data to cover the increases, or figure out ways to reduce their spend (and often, both).

In a more recent Open Platform, Susan Strausberg, chief executive of financial search engine 9W Search, described the value of metadata tags to make search more efficient, allowing users to get the right data, faster. Equally, I would argue that there is a case for a similar “period of discovery” in the metadata space, using these same principles to tag individual data items, so that data is controlled not just at the contract level, but at the field and data element level, so that any data being used outside its authorized terms is automatically rejected, so firms can be confident of what they’re using, who is using it, and how it is being used, to allow them to control costs and eliminate any risk of penalties for under-reporting, which is a whole separate—and potentially costly—aspect of the fee debate.