Market Data: Pump Up the Volume

"The buy side is conservative." This verdict was passed down to me by an executive at a market data firm. He didn't mean that buy-side traders and hedge fund managers are conservative in how they vote, the width of their neckties or how late they let their daughters stay out on school nights. He was talking about buy-side firms' view on technology spending. Given a choice to spend a lot on new wares, they'd rather not, thank you.

With the importance of technology in today's electronic markets, this ethos may seem foolish. But there are upsides to the approach. For one thing, you can tune out the vendors, which crow that every problem on Wall Street will be solved once firms update their technology.

Every time a rogue trader strikes, for example, the vendor press releases about how you need to get your risk systems in order start to fly. This was especially true in the days after Bear Stearns and Lehman Brothers collapsed in 2008. But even before the financial crisis, all capital markets firms had robust risk systems and risk officers in place, didn't they? The suits just ignored the blinking red lights. (Perhaps the newest risk systems will set off a foghorn when a trader is about to go off the deep end.)

So conservatism, in this case, means that the buy side doesn't jump onto every hardware and software trend. Besides, why should buy-side firms invest in costly technology upgrades when the sell side and prime brokers can pay for it?

When it comes to market data infrastructure, however, the buy side may have to loosen the purse strings.

While researching the cover story on market data for the February issue of Advanced Trading, I confirmed what I had long suspected: Even while everyone complains about the record-breaking volume of market data, traders want more. There's too much data, sure; but it's too much of the wrong numbers.

The February issue also explores other aspects of the industry outlook. As associate editor Justin Grant reports, while the prospects for hedge funds are looking up after a bruising 2011, traders looking for work face a tough road. And while quants are in demand on Wall Street, competition for their expertise is heating up, and even top firms such as Goldman Sachs may lose promising candidates to Google and Facebook.

In addition, former AT editor-in-chief Kerry Massaro Bowbliss returns for a guest appearance; she examines the state of global network connectivity and the challenges the buy side still faces in trading in emerging markets. And on the lighter side, Grant highlights five professional athletes who have traded in the gridiron and the hardcourt for the trading floor. It seems the pressurized environment and the lure of a big payday on Wall Street make for a fitting comeback.

In the meantime, while the roar of market data may be deafening, traders want it even louder.