Book a demo

Client Success Story: Market and Reference Data Compliance - How compliant is your market data use?

PDF button - WP page

Why do exchanges and vendors do audits? ๐Ÿ•ต๏ธ

Compliance with the terms & conditions of stock exchanges, market data vendors and third party data providers.

Understanding the rationale and reasoning

Traditional stock exchanges are increasingly conducting audits, because they:

๐Ÿ‘‰ Want to address the fact that new ways of (automated) trading are making use of the exchangesโ€™ data that hadnโ€™t been anticipated
๐Ÿ‘‰ Are under pressure from new trading venues such MTFโ€™s (Multilateral Trading Facilities) and want to protect their own franchise
๐Ÿ‘‰ Want to address unlawful, piracy-like use of their data

Vendors are increasingly conducting audits, because they:

๐Ÿ‘‰ See a shift away from their terminals to low-cost market data display providers, to internal display applications, and to non display applications
๐Ÿ‘‰ Want to/need to grow revenues, even in difficult times
๐Ÿ‘‰ Want to be in a bargaining position with the client, to tie them in for the following years (or hit them with a substantial audit claim)

Third party providers (such as broker/dealers and benchmark index providers):

๐Ÿ‘‰ Want to push for wider brand recognition and capitalization
๐Ÿ‘‰ Wish to protect sometimes decadesโ€™ worth of proprietary research and analysis
๐Ÿ‘‰ Need to get a (better) return on many years of investment in technology and infrastructure

What is it that auditors want to look at? ๐Ÿ‘€

Understanding the rationale and reasoning

The subject of audits is the (nature of the) use of the data of the originating source:


How compliant is your market data use? ๐Ÿ“

The importance of keeping complete, verifiable records

Distribution of market data via standard Distribution Platforms (e.g. TREP) has its limitations for compliance purposes.

โœ… Platforms like TREP and the associated DACS reporting do not go beyond permissioning
of terminals and single instances of (internal) applications and data feeds
โœ… As a result there is no standard, automated permissioning system for these applications
and the end-users connected to them

The limitations resulting from the above are not sufficiently compensated; not each and every potential access to the data that is subject of the audit is declared.

โœ… because the processes and procedures are not in place
โœ… because no existing costs are concerned
โœ… because the (internal) applications have often not been developed to allow user enabling/disabling of externally sourced data

Different rules from different data sources โ—

Each entity has its own definition of the T&C concepts

Complying with the Terms & Conditions of one entity is no straight guarantee for compliance with the T&Cโ€™s of others!market-and-reference-data-compliance-t-and-c-concept

The primary area: use of real time data ๐Ÿ“Š

How real is real time โ€“ some general principles*


But it is not only about real time data ๐Ÿค”

What else may compliance auditors look at...

Subject of an audit are the following:

The records kept from the data distribution platform
๐Ÿ‘‰ What is the entitlement system and how does it work?

Usage of market data in non-terminal applications
๐Ÿ‘‰ Is there an Open DACS*, or is information about potential access kept in a different way?

Redistribution and/or processing of the original data
๐Ÿ‘‰ Is data processed further, without the possibility of โ€œreverse engineeringโ€?
๐Ÿ‘‰ Is data distributed further within the organization, or outside the organization?
* Open DACS is an extension to DACS and enables individual user permissioning on other RMDS connected applications

Compliance with the Datascope contract? ๐Ÿ“

Many variables to take into consideration

To make an assessment of the exposure we have to establish the following:

โ“ How many DataScope data consumers are there that donโ€˜t have an Eikon terminal
โ“ Are all โ€žBusiness Activitiesโ€œ consuming data listed?
โ“ Is the number of RICs that has been agreed upon accurate?
โ“ Is the current RICs usage level steady, or is it growing?

Terms & Conditions โ€“ Third parties ๐Ÿ“„

Various categories of Third Party providers

Broker/Dealers ๐Ÿ‘‡
โ€ข TullettPrebon
โ€ข NEX
โ€ข Tradition
โ€ข GFI

Benchmark Index Providers ๐Ÿ‘‡
โ€ข MSCI
โ€ข FTSE

Independent Credit Research and Ratings Providers ๐Ÿ‘‡
โ€ข Moodyโ€˜s
โ€ข S&P
โ€ข Fitch

Summary & Conclusions ๐Ÿ’ก

The most important findings - example:

โœ… Client firm is not compliant with the Terms & Conditions of the agreements it has with its sources of data.

โœ… While the firm is not unique in this respect (TRG Screen estimates that more than 90% of user firms are non-compliant for an amount exceeding 20% of their total annual spend on market data) it is necessary to take remedying action straight away.

โœ… The biggest area that needs to be addressed is the fact that, in System X, real time market data is available across the board.

โœ… The business side is not (fully) aware of the financial exposure that the firm has and is not prepared, in budget terms, for a cross-charge of the actual costs, should this be imposed on them.

โœ… The market data management department is not well-equipped to respond to market data compliance audits. Historical records are patchy, and the market data administration application is not (fully) used.

Recommendations ๐Ÿš€

Taking the next steps

Recommendations are dependent on the particular issues found at the client firm, buy here are some simplified examples:

1. Set up an administration system on a โ€œper userโ€ basis for application users.
Be in control of your market data spend and/or exposure.

2. Switch all real-time exchanges to delayed
Discuss with business, test appropriateness

3. Liaise with business to check real-time needs for the user group currently authorized
Check in particular FX/MM, Risk, Sales desk

4. Upgrade to a system version that supports Open DACS
Take control over all users. Open DACS is the entitlement system to support user entitlements outside immediate DACS control

Ready to Optimize your Enterprise Subscription Spend & Usage? We think you are! ๐Ÿ‘‡

Book a demo         Talk to an expert