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Current Trends in Market Data

Relationships between capital markets industry participants and the market data vendors servicing them have never been as strained as they are now. To understand why, it’s important to understand how the financial crisis has impacted each of them. For Industry Participants: • Few are untouched by the current crisis and cost reduction initiatives dominate their business plans. • Data acquisition for mature products is viewed as a controllable expense for which aggressive cost take out targets have been established. • Traditional components of the supply and demand sides are being actively addressed • For the Supply Side: – Contacting vendors prior to contract expiration to re-negotiate fees. – Pursuing volume discounts supported by the development of volume to price algorithms. – Offering to sign up for multiyear deals in exchange for discounts. – Approaching vendors on rebates related to the amount of instances a vendor delivers incorrect data. •For the Demand Side: – Centralizing data acquisition. • Beginning with geographic consolidation and ending with global management. – Working with internal Human Resources Groups on updating job descriptions to include data requirements. - Establishing stringent approval processes for data requests outside of the job description. - Setting up frequent (quarterly/semi annual) reviews of employee requirements. • Maintaining resources — even with the massive headcount reductions taking place across the industry — to perform line by line reviews of invoices searching for instances of intra company double counting — from either organizational or vendor inefficiencies. Nontraditional Alternatives are Also Being Explored and Face Significant Challenges. • Moving Data Management Processes Offshore. • This is generating mixed reviews as industry participants question the amount of achievable savings due to shrinking offshore labor arbitrage opportunities combined with the need to establish U.S. based shadow organizations to provide oversight and quality control. • As a result considering lower cost locations in the U.S. gaining traction. • Acquiring Data Directly From the Source. • Challenges include: – No single source of data for any asset class – particularly fixed income. – Prohibitive costs associated with connectivity and storage and setting up and managing internal data scrubbing units. • Creating Utilities. • Same issues as above with the additional challenges of: – Attempted and failed in the past. – Differing views in the industry on what data provides competitive advantage. – Limited history of industry participants successfully partnering in Utility creation. – Limited resource availability for funding. – Expected strong vendor opposition including legal action if their data is involved. – Regulatory agencies may not view utility data as independent enough. – Not all FS consumers will react favorably. What’s Working: • Signing Up For Long Term Contracts. • User gets a discount, vendor locks in a multiyear deal. • Revisiting The Demand Side. • Moving to a global management model. • Strengthening controls on employee usage. • Reconciling vendor invoices fully. • Moving Functions to Lower Cost U.S. Locations. • Recognizing the function does not need to be in the same geographic location as the user. For Data Vendors: • Pricing models are under fire. • Customer procurement organizations are relentless in demanding savings opportunities. • The loss of Bear Stearns, Lehman Brothers and others combined with consolidations such as BOA and Merrill Lynch has been painful. • The common response has been a “best defense is a good offense strategy”. – Raising fees. – Changing pricing models from a “single fee” to a “by usage” format. – Resisting re-negotiating contracts. – Leveraging front office relationships. What’s Working: • Leveraging Front Office Relationships. • Bypassing Procurement and Senior Data Officers. • Playing Hardball on Contract Re-negotiations, making it as difficult as possible. • Exploiting Their Positions as Industry Leaders. • Recognizing users have few options. • Telling Users – Not Asking – About Pricing Model Changes • Being as aggressive as possible These competing agendas of Cost Reduction versus Revenue Model Protection leave little room for meeting in the middle and with no end in sight to the current crisis these relationships will not be improving anytime soon.
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