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Market Data Has its “Cord Cutting” Moment

By Bob Ward, CEO, QUODD

The term “cord cutter” gained momentum in 2010 as streaming services began to pose a formidable threat to the legacy cable industry. As that trend has played out over the last decade, it’s clear consumers now have the power to create their ideal mix between both traditional and streaming TV options. In the same way, we see an emerging parallel in market data consumption across the financial services industry, in particular impacting wealth management, investment advisory and their service providers. 

While legacy market data providers will always have a place within large firms, it’s clear different personas within all organizations, particularly in the middle and back office, don’t always need (or want) the bells and whistles that come with those offerings. The trend towards data-on-demand involves customized delivery models, coupled with a user-specific experience that works better with the workflow needs of these workers, who are often remote and need access quickly.  

As data consumption patterns have changed, market data providers must adjust to remain relevant and focus on modernizing the technology platforms and delivery models to fulfill new expectations. Provided the commensurate levels of coverage, quality, and timeliness, data solutions integrated into a single digital platform which integrates the front to middle to back-office workflows into a common experience will be poised to sit at the same table and potentially leapfrog the entrenched providers.

Why market data is in the spotlight

Market data has come under the spotlight in recent years, driven by three primary factors. 

First, there have been residual pandemic impacts. Remote work is permanent, meaning digital remote access is imperative for operations and back-office employees. For example, the demands from specialized groups include an even greater need to access consolidated data from multiple sources. This is happening at a time when the legacy market data providers are cracking down on usage rights.

Second, firms are seeking to squeeze more efficiency out of their back office to combat tightening margins. The challenge has been especially hard for the wealth management service provider.  

Also, fee structures for market data content have skyrocketed, and the enabling technology powering many of the old-school market data players has not kept pace. This has prevented the institution the desired operating leverage from one common data platform that can not only connect the workflows, but also can cut across the functional areas of the institution, such as private wealth, trust, retirement, and retail advisory. This makes market data a prime candidate to consider when it comes to the rationalization of operational systems. 

The emerging opportunity to serve the middle and back office

Aside from the macro factors of the desired operating model and operating leverage mandated from the industry, a one-size-fits-all approach to market data doesn’t work anymore from a practical standpoint. Middle and back-office employees are better served in many cases by alternative market data solutions that align more with their specific job function and responsibilities.  

Existing solutions have been too broad and not targeted to workflow needs, and users often overpay for system functionality and unneeded information. 

Newer entrants to the market data industry have shown more nimble providers can rise to the challenge and solve these specific pain points. This drives a far better user experience and continuous improvement to the broader relationship with customers.

This can include anything from automated new client onboarding, managing price validations, monitoring ongoing price fluctuations, initiating price challenges, and pulling data on demand for workflows such as posting income, sourcing cash flows, monitoring corporate actions, and pulling daily accruals.

The benefits of customized market data tools

New billing and fee models are evolving to align with these models of consumption. A customized data delivery model that can better track usage and its impact on the P&L is vital. The quality of the data is the same for a specific point. The benefit lies in a much more flexible and commercially aligned pricing model with the financial institutions or its servicing platform.

Another related benefit is it improves overall governance, which changed during the pandemic and as more employees permanently work remotely. As the data landscape evolves, the institutions and/or their service providers are upping the ante with compliance, corporate governance, and risk management oversight to handle the ever-increasing appetite for global investing, new regulations to exchanges, more complex security types, demands for real-time information, and fiduciary requirements.  

Importance of reliable secondary/backup data

With new market data challengers emerging, it’s important to acknowledge, just like with the streaming/cable analogy, these are often not disrupting a primary data relationship, but a complementary one. This is because access to reliable secondary and/or backup data is a prominent component of the overall data consumption strategy.   

For example, employees within a wealth management team use secondary and backup data on fixed income to gain transparency insight to market conditions defending the rationale for a certain price. This kind of transparency data assists with pre- and post- trade decisions and valuation oversight. It enables users to better understand the market data inputs that go into the creation of an evaluation. 

Prudence calls for two sources of market data. Beyond the corporate governance and compliance mandates, there are significant considerations to consider. Technology could go bump in the night or global markets could experience wild swings, which all wealth management organizations invariably face at times in this ever-changing environment. The engine rooms of the financial services operation need a trustworthy secondary source that powers market data with the greatest degree of quality, reliability, accuracy, and timeliness in order meet the needs of all their stakeholders. 

The Technology Imperative

The future market data leaders will be built upon a technology process that easily ingests, normalizes, and productizes any market data content for consumption. This brings together all best-of-breed market data content providers via one single client-centric digital platform and enables the operations and client service functions to be connected with on demand, customized finger-tip access from anywhere.

Ultimately, better and more efficient technology will win the day when firms seeking to improve operational workflow for their employees and clients as well as rationalize their market data spend start weighing alternative options. We’re just beginning to explore how this will make the industry more efficient.