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Market Data Challenges Loom for Firms

With decreasing market capitalizations, high volatility and volumes continuing to skyrocket, financial firms are dealing with significant challenges around managing their market data.

With decreasing market capitalizations, high volatility and volumes continuing to skyrocket, financial firms are dealing with significant challenges around managing their market data.

In a Webinar sponsored by Interactive Data Corporation, Larry Tabb, founder and CEO of Tabb Group, was joined by panelists Martin Kullman, senior product manager for market data services at Raymond James, and Claus Thorball head of global market data at Saxo Bank, to discuss the ongoing market data challenges firms are facing.

Tabb pointed out that with decreased IT spending projected for the 2008/2009 year and cost cutting across the board, many firms are taking a serious look at their market data usage and expenditures.

Tabb set forth three distinct levels that firms can look to analyze and ultimately make decisions to more effectively manage market data in this difficult environment.

First off Tabb suggested evaluating the “easy initiatives” such as managing provisioning better and evaluating who within the firm should have data and who doesn’t necessarily need certain data sets. Rationalizing users to ensure the right data is with the right person is also key and eliminates the costs associated with “nice to have data.”

The second level would be the “medium initiatives” where Tabb said evaluating of appropriate data for appropriate functions within the firm. This would also include determining and rationalizing data redundancies.

Tabb said it’s key to ask questions such as, “do you have the appropriate dual providers and do you need both for each product, category and service level?” At this point it would also be good to evaluate what would happen if one provider went down as well as the possibility of switching out more expensive data providers for less expensive ones.

The third level is the hard initiatives that firms must decide on. This would be additional cuts to market data services in more creative ways and would require top level management buy in as most likely users won’t be too happy, said Tabb.

Kullman described how Raymond James instituted a cost-cutting strategy around market data during the past nine months to a year. “We spent a significant amount of time looking at our contracts, evaluating how we wanted to trim some costs out of those contracts, negotiating and renewals,” said Kullman.

“We had to look internally at how exactly we were using the market data and validate how we were using that data,” he added.

While the cost savings didn’t happen overnight, Kullman said the firm has already seen savings of about 10 percent on total market data spend.

Thorball said that his firm has also undergone significant review and cost cutting around market data. “We started with the low hanging fruit and have been working our way down,” he said. “Now we’re at the ‘hard initiatives’ stage and have to asses the value of each data item and decided whether we want it or not.”

He explained that last year Saxo Bank consolidated its market data cost view across the firm at all levels into one budget. “It came out as the third biggest spending area within the company following the HR budget and the IT budget,” said Thorball. “Naturally that drew a lot of attention to market data.”

Thorball said that Saxo Bank has seen between five and 15 percent cost savings over the last year. But the firm is also investing in certain areas around market data, particularly the infrastructure. “When it comes to service, connectivity lines and distribution lines there will be investment—we don’t want to compromise data quality,” he said.

According to Thorball, and a poll of participants during the Webinar, eliminating redundant providers is the area where most cost reductions are made.

“At Saxo Bank we’re providing multiple markets and using multiple markets internally and had up to three market data providers in each market,” he explained. “We have challenged that and segmented the markets into three tiers. So the top tier, or most traded markets, get full coverage and three providers. The middle tier gets two providers and the least traded markets get one provider.”

The result? “It was a difficult change from the business side but successful from a cost and redundancy perspective. And they haven’t missed the providers,” said Thorball.

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