Max Bowie: Unlucky ’13: Expect the Unexpected

After politicians reached a last-minute deal to prevent the US sliding off the so-called Fiscal Cliff, and benchmark indexes rallied on the first day of trading in the New Year, there is hope that 2013—despite ’13 being considered unlucky by some—will bring cause for optimism in the financial markets, and specifically the financial market data industry.

Certainly, spending on data and technology is likely to increase—if only because the lean last few years have forced firms to delay projects as long as possible. But some investments simply cannot be avoided forever. For example, says Jeff Wells, CEO of marketing consultancy NuPont, the industry may have been lulled into a false sense of security around data capacity by current low trading volumes. But if the Year of the Snake turns out to be a bull year, market data volumes could jump to 25.5 million message updates per second. And if firms expect growth, they need to prepare accordingly.

Much of firms’ investment in recent years has been to meet new regulatory requirements—but some, like Steven Roe, CEO of West Highland Support Services, question whether these rules will achieve their desired ends, let alone slow down the markets, or create a stable environment for growth.

Instead, achieving real growth and success will be harder, requiring extraordinary efforts from market participants, and resulting in extraordinary demands—though “rightfully so”—from firms on their suppliers, says Lou Eccleston, president of S&P Capital IQ, who adds that the concept of “business as usual” is no longer the same as it once was, and now demands constant innovation to support clients’ ability to take advantage of their new ideas.

In With The New
In recent years, new ideas have been driven by those able to collect and harness new types of data, such as quantifying the sentiment of news stories. By analyzing its own history of sentiment data to predict activity in 2013, behavioral research provider MarketPsych found that trust will play a big role in stimulating investor confidence this year, driving capital into the largest and longest-established funds, and away from big names tarnished by scandals such as Libor, with real-estate, building and construction sectors predicted to perform well—better than energy stocks, for example—which suggests demand will increase this year for new datasets and data on “new” asset classes.

I believe industry spend will grow on new projects in 2013, but accompanied by demands that any increases in expenditure be matched by corresponding cuts elsewhere.

Kevin Lowther, CEO of consultancy Mentem Partners, says the rise of new datasets—particularly the concept of Big Data—has yet to reveal its greatest challenge: not coping with the data itself, but managing the various ownership, intellectual property, and licensing issues arising from this data and its associated derived datasets, forcing already resource-constrained market data departments to expand their intellectual property law knowledge.

But this will be hard as firms are “cutting off their noses to spite their face” by laying off more experienced—and hence more expensive—staff, including market data personnel, at a time when data issues are more complex, says Rafah Hanna, principal at consultancy DataContent, adding that less experienced staff will be ill-equipped to tackle their firms’ compliance issues and prepare for data audits.

But others say continuing economic circumstances that may be unlucky for some present an opportunity for them. For example, Interactive Data anticipates even tougher market data budgets in 2013, prompting firms to aggregate and consolidate market data services, platforms and infrastructures, reducing redundancy and potentially becoming more reliant on one provider—which, predictably, Emmanuel Doe, president of the vendor’s trading solutions group, says would be Interactive Data.

For more expert opinions, see the Jan. 7 issue of Inside Market Data. As for me, I believe net industry spending will continue flat, but that this will actually represent a growth in spending on new projects as firms get serious about laying the foundation for sustainable and organic business growth, while also representing a Weight Watchers-like approach to spending management that demands any increases in expenditure be matched by cuts from elsewhere.