Michael Shashoua: Consider the Data Pre-Nup

At the Inside Market Data and Inside Reference Data Toronto Financial Information Summit last month, I was struck by a thorny data dilemma that was raised in one of the sessions. A Bank of Montreal Capital Markets supervisor shared his pain over vendors claiming rights to bank-generated pricing data because it flows through their ticker plants. It sounded like his firm’s relationship with the vendors had become frustrating.

This seems to be a case of vendors getting carried away with what they think they can, in their dealings with their clients. In a response to this question, Adam Striffler, a vice president in electronic trading at Goldman Sachs, pointed out that a firm of that scale has the resources to build its own ticker plant and remove the issue entirely.

But for firms other than Wall Street’s biggest, there do seem to be remedies. Donna Rudnicki, director of data management and data management systems at the Canada Pension Plan Investment Board, says her firm pushes back when vendors claim data rights in service contracts. “Vendors are hearing it not just from our organization, but from across the board,” she says. “On some of them, we’ve had some success pushing back.”

Vendors can’t force clients or users to completely eliminate data that passes through their ticker plants once their contract runs out or is terminated. “Once you get that data into your infrastructure, you’re backing it up and archiving it,” Rudnicki says. “It’s offsite and technically almost impossible to remove all that data from the infrastructure.”

Enforcing Contracts
Also, a data consumer could always go rogue and continue to house and use that historic data despite it having flowed through the provider’s systems and a contract asserting the vendor’s ownership, says Ed Ventura, president of Ventura Management Associates, a data management consultancy. But Ventura doesn’t recommend this practice.

So what can a data consumer do? “They are beginning to feel tied to solutions that may no longer be compatible with their needs,” Ventura says. The best practice, he adds, is to negotiate the issue when starting a relationship with a vendor or at contract renewal time. “Clauses can be written that allow the consumer to maintain historical data, perhaps for an up-front fee or an on-going fee,” says Ventura. “While consumers don’t typically look to the ending of a relationship at the start of it, there is value in both parties having a data pre-nuptial agreement.”

Could the industry be helped by user firms banding together to ensure that those who generate the data own it in the end? No one is denying ticker plant providers the right to earn a living, but if their customers think they’re going too far, that dissatisfaction can be leveraged to get those ownership clauses removed.

Quid Pro Quo
Another issue that sparked discussion in Toronto concerned how Canadian market structure changes are raising the costs of data as well as its intrinsic value.

Panelists questioned whether smaller or newer exchanges should have to prove themselves in order to launch data businesses or get firms to use their data, as well as whether those venues can be automatically “price protected” in trading. “We, and the other panelists here, could create a new marketplace and tomorrow we’re price protected,” says Jos Schmitt, CEO of Alpha Group.

If the trades and the venue, however small, are legitimate, obtaining the data and incorporating it into a complete picture of the market is part of the price of doing business. Put this issue together with that of data ownership and one sees a give and take—firms pay ticker plants to transmit their own data, and because they pay, the vendors don’t get to own it. But the firms also have to pay to get all the data that’s out there. These rights and responsibilities ought to function the same way in Canada or any other market for that matter.