The Growing Significance of Market Data within Financial Markets (Review Report)

Market data has always been a fundamental element within capital and financial markets. However, upcoming regulations such as MiIFID and Reg NMS will place immense pressures for accuracy and transparency which has raised the significance of market data and therefore brought this issue back on the strategic agenda.



Report Highlights
While algorithmic models surely will not run out of market data, given the staggering growth in market data traffic and quote messages in recent years, the 'fuel lines' of algorithmic trading could most certainly become "clogged" according to an industry respondent. Bearing in mind that Reg NMS and MiFID will be fully enacted in October and November this year, respectively, some firms have been investing heavily over the last few months to set up their data infrastructure in order to begin testing in the new environments. In order to fulfil best execution obligations under the new rules, banks will not only have to achieve best price for the order, but they will also have to make sure that they do not miss better opportunities. Hence, this is resulting in brokerages apportioning a significant amount of their IT budget into data handling technology.


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Overview 1
Catalyst 1
Summary 1
Methodology 1
Executive Summary 2
Introduction 2
Impact of regulation on market data (Market Focus) 2
Market data strategies in response to Reg NMS and MiFID (Strategy Focus) 2
Solutions and strategies for going forward in a rapidly evolving market data environment (Technology Focus) 3
Market data infrastructure expenditure by type of organization (Databook) 3
Market data infrastructure expenditure by asset class (Databook) 3
impact of regulation on market data (Market Focus) 5
SUMMARY 5
Analysis 5
Market data is the lifeblood of the financial services industry 5
Market data is the 'fuel' for algorithmic trading models 6
Exchanges are increasingly adopting FAST protocol 7
Speed and quality of market data will be new revenue drivers for exchanges 7
FAST could be key towards the development of a market data standard 8
Reg NMS and MiFID will 'fuel' growth in market data volumes 8
Overview of Reg NMS and MiFID 9
MiFID is broader in scope than Reg NMS 9
Retail investors look set to win and exchanges to lose 12
Exchanges are creating new services to boost market data fees 13
Increasing number of exchanges are moving into the trade reporting business 14
TRFs boost exchanges' bottom lines 14
Exchanges need to and some currently are focusing on offering low cost executions 15
Market data strategies in response to Reg NMS and MiFID (Strategy Focus) 16
SUMMARY 16
Analysis 16
Broker-dealers are preparing for upcoming surge in market data 16
Market data cost reduction is a key priority 17
Banks are looking to reduce cost burden by selling their own market data 18
Complying with MiFID or Reg NMS - should firms build or buy solutions? 18
The next wave of market data management will go beyond setting up robust infrastructures 19
Focus is moving away from market data content and towards market data infrastructure 19
The need for partnership is vital 20
Data compliance is key priority for many FSIs 20
The need for data governance is gaining momentum 20
Firms need to cost effectively manage their market data services 21
Planning is a prerequisite for success 21
Effective market data management is the second prerequisite for success 21
A centralized market data strategy can help firms respond to compliance requirements 22
SOlutions and strategies for going forward in a rapidly evolving market data environment (technology Focus) 24
SUMMARY 24
Analysis 24
Investment into market data infrastructures will continue to grow 24
Firstly, market data volumes are doubling annually thereby forcing capacity extension 24
Secondly, regulatory reforms are greatly impacting the market data landscape 24
Thirdly, competitive forces are taking effect 25
Fourthly, rather than members of staff, applications are the main consumers of market data, therefore infrastructure and speed have become paramount 26
Market data platforms must support firms' automated trading strategies 26
White box approach is the next generation in algorithmic trading 27
Maintaining data quality is a major hurdle throughout the trading lifecycle 27
Time series order is critical in today's environment 28
In memory databases open up the possibilities for advanced event processing capabilities 28
Traditional relational databases cannot cope with today's market data challenges 28
Market data platforms are evolving into next generation 'cross-asset' infrastructures 29
Industry may move to a central utility for storage and retrieval of market data 30
Market data infrastructure best practice guidelines 30
Market data infrastructure expenditure by type of organization (databook) 32
Introduction 32
Global (USA & Europe) front office market data expenditure from buy side institutions 32
Global (USA & Europe) front office market data expenditure from sell side institutions 33
Global (USA & Europe) front office market data expenditure from other (i.e. treasury) functions 34
Market data infrastructure expenditure by asset class (databook) 36
Introduction 36
Global (USA & Europe) front office market data expenditure for Equities 36
Global (USA & Europe) front office market data expenditure for Fixed Income 37
Global (USA & Europe) front office market data expenditure for FX / Others 38
APPENDIX 40
Definitions 40
Internal 40
External 40
Packaged software 40
Professional services 40
Outsourcing 40
Hardware 40
Systems integration 41
Event processing 41
Further reading 41
Ask the analyst 41
Datamonitor consulting 41
Disclaimer 41

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Table 1: Global (USA & Europe) front office market data expenditure from buy side institutions ($m) 33
Table 2: Global (USA & Europe) front office market data expenditure from sell side institutions ($m) 34
Table 3: Global (USA & Europe) front office market data expenditure from other (i.e. treasury) functions ($m) 35
Table 4: Global (USA & Europe) front office market data expenditure for Equities ($m) 37
Table 5: Global (USA & Europe) front office market data expenditure for Fixed Income ($m) 38
Table 6: Global (USA & Europe) front office market data expenditure for FX / Others ($m) 39


Figure 1: Key drivers and catalysts behind increased market data volumes 6
Figure 2: Key elements of Reg NMS and MiFID 10
Figure 3: Reg NMS and MiFID compliance IT spend 12
Figure 4: Front office market data storage expenditure (US and European) ($m) 25
Figure 5: Global (USA & Europe) front office market data expenditure from buy side institutions ($m) 32
Figure 6: Global (USA & Europe) front office market data expenditure from sell side institutions ($m) 33
Figure 7: Global (USA & Europe) front office market data expenditure from other (i.e. treasury) functions ($m) 34
Figure 8: Global (USA & Europe) front office market data expenditure for Equities ($m) 36
Figure 9: Global (USA & Europe) front office market data expenditure for Fixed Income ($m) 37
Figure 10: Global (USA & Europe) front office market data expenditure for FX / Others ($m) 38

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