Cutting reference data costs and driving value | By Amjad Zoghbi

Did you know that financial institutions typically overspend on reference data?

On average financial institutions spend 25% more than necessary on reference data and this is largely due to a reactive approach to reference data management, which limits visibility and actionable insights, leading to wasted spend on duplicate, underutilized and overpriced data.

Most market data teams lack any insights into reference data usage and cost, making it extremely difficult to achieve financial control and operational efficiency. However, firms that shift from a reactive to a proactive approach in market data management drive 25-30% reductions in spend, cut manual reconciliation and reporting time from several days a month to a few minutes and avoid surprise compliance discussions or fees.

Here, I explain the concept of proactive reference data management and the value it delivers to our financial services clients.

What is reference data and why does this matter? 

We define reference data as data that can be stored and reused in an organization. It can also be referred to as pricing and reference data or static data. Reference data comes from non-streaming, non-delayed and non-terminal feeds. 

The spend for reference data accounts for roughly 10-30% of market data budgets—sometimes totaling tens of millions of dollars annually—these are big budgets, making it crucial for financial institutions to scrutinize and manage properly.

Why is managing reference data so challenging? 

Managing reference data is fraught with complexities that make cost optimization and operational efficiency difficult. Here are the main challenges:

1.  Complex commercial models: Reference data is governed by diverse pricing structures such as metered, banded, volume-based and enterprise deals, each with distinct cost implications.
2. Strict licensing rules: Licensing agreements impose granular regulations on data usage, sharing and reporting, which increases administration and compliance risks.
3. Technical challenges: The infrastructure for processing large volumes of reference data attributes often obscures understanding of its consumption across organizations.

Market data vendors report usage according to their commercial models and licensing agreements, with customers receiving invoices and notices retrospectively. The insights and technology behind these processes remain behind closed doors on the vendor side, creating a lack of transparency for clients and making cost and usage management very challenging.

What impact does this have?

In this environment, most market data teams operate reactively, using invoices to track fluctuating spend without understanding the reasons behind it. 

Some invest days or weeks manually decoding invoices or detailed reports from providers in a limited attempt to sense check expenses. Very few have real-time granular visibility into usage and associated costs.

This lack of insight prevents firms from uncovering cost drivers and eliminating unnecessary expenses – potentially saving 25-30% and establishing a culture of cost transparency and accountability in their firms.

How can you address this challenge? 

To transition from a reactive to a proactive approach in reference data management, you need the right tools and strategies. 

Purpose built solutions for reference data usage management offer advanced capabilities that empower financial institutions to take control of their reference data processes, uncover hidden costs, ensure compliance and ultimately achieve significant savings.

Here are essential capabilities you should expect from an advanced, specialist solution:

• Proactive usage insights across vendors: Track usage and costs across reference data vendors, in real-time, to identify anomalies, uncover cost saving opportunities and optimize data consumption patterns.
• Instant notifications: Receive alerts for non-compliant, costly or unexpected data requests, enabling you to manage anomalies and control costs before they escalate.
• On-demand reporting: Generate timely, comprehensive audit and usage reports with just a few clicks, streamlining data tracking, cost allocations and compliance reporting.
• Context: Reference data requires specialist knowledge, it requires an understanding of complex commercial models, usage and licensing agreements and the financial services business. So contextualizing data with human expertise is very important.
  
  

By embracing these best practices, your firm can move beyond reactive management to establish a framework for proactive control, transparency and governance over reference data usage.

What are the benefits? 

With this intelligence, financial institutions can eliminate redundant, underutilized, duplicate and overpriced market data licenses and fees. 

• Eliminate redundant costs: For example, we assisted an asset management firm in reducing its reference data fees by 27% by identifying and consolidating redundant licenses after discovering that the firm was requesting the same data more than 17 times daily from four different systems.
• Prevent unnecessary spend: In another instance, our solution traced the cause of a sudden spike in data usage, leading to a financial saving of $35,000 per month and implementing measures to prevent similar incidents in the future.
• Ensure usage compliance: Finally, one of our clients used our compliance functionality to ensure all third party pass-through licensed data attributes were precisely accounted for and implemented rules to prevent non-compliant access.

Proactive usage monitoring is not just a buzzword; it’s a transformative approach that streamlines the management and oversight of reference data. It enhances operational efficiency and drives substantial cost savings.

Want to find out more about how you can take control of your reference data costs? Book a strategy call with one of our experts!