Record market data spend 💰 highlights need to track costs

Spending on financial market data rose almost 6 percent to a new record of more than $33 billion (2020), according to an annual report by Burton-Taylor Consulting, and expected to grow strongly.
(EDIT: market data spending increased 7.4% to 35.6 billion in 2021 and two in three survey respondents to Burton-Taylor’s annual market data survey estimate industry growth in 2022 to be greater than the 5-year average of 4.6%.)

“This makes data one of the biggest costs facing financial institutions.”

Market volatility during the pandemic fueled increased data demand while a shift to remote working led to an uplift in the number of licenses required, potentially making it harder to track compliance with vendor contracts.

Industry insiders say the cost per license rose sharply in 2020, above the 2-5 percent norm 📈

Alternative data is a growth area, expanding the variety and complexity of sources to be managed. Nearly two-thirds of respondents to a separate Burton-Taylor survey said they expected to increase alt-data spending.

These factors are putting pressure on firms large and small, to optimize their spend on and their usage of both data and information.

But optimization is more than just cost cutting. It requires clarity on spend, usage, compliance and data enquiries, among many other factors across the lifecycle of a market data subscription.

For the data manager, the goal is optimum visibility of the data landscape.

This should cut the time spent on spreadsheets, leaving more for higher-value tasks such as ensuring users have only the best and most relevant data.

It can also lead to potential savings of 10-30 percent in the first year.

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This makes data among the biggest costs facing financial firms, exceeded only by expenditure on buildings and labor, analysts say.

The largest banks can each spend upwards of $500 million a year on feeds from stock exchanges, specialist data providers, and credit-rating agencies, among others.

While smaller institutions may not match these total sums, costs per user are unlikely to be any less and spending on data and information may be an even bigger share of their outgoings.

Market volatility during the pandemic has led to increased data demand, combined with an uplift in licenses required due to the shift to remote working. Vendors have also raised their prices per license – above the 2-5 percent increase seen in a “normal” year.

This has put financial institutions under increased pressure to optimize their spend on and use of data and information that underpin today’s financial trading.

The increasing value of market data is transforming the industry as players seek to strengthen their positions in an evolving marketplace.

High-profile transactions such as S&P Global’s $44 billion merger with IHS Markit and the London Stock Exchange’s $27 billion acquisition of Refinitiv underline the importance of data providers.

They also make careful management of data usage and spend even more vital, industry insiders say.

Alt data gains interest (from predicted 50% increase in 2020 to 62% increase in 2021), as market volatility pushed firms to seek data that can provide an edge.

An important driver of volume and complexity is growing demand for automation to fuel algorithmic and high-frequency trading and state-of-the-art analytics.

A report last year from Greenwich Associates found that some 46 percent of institutional trading in equities and 22 percent of foreign exchange trading was driven by algorithms 👨‍💻

Yet replacing traders with an algorithm does not necessarily reduce data costs.

Delivering data for automated trading and other applications is no less expensive than providing it for people and leads to potentially higher contractual risk.

Cost Creep

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As more segments of the business request data and more of the subscriber's apps start using the information, are they being properly prioritized. As enquiries multiply, is there evidence of “cost creep” that needs to be managed?

Lose control of these factors and tracking or forecasting the data budget is a problem.

A big part of the task is ensuring the institution remains compliant with all its numerous vendors’ contracts. Market data, like other parts of the subscription economy, come licensed, with restrictions on who is permitted to use them, and how the datasets can be distributed.

Failure to comply can result in fines and reputational damage ❌

Then there are the thousands of separate invoices, often still on paper, and the easy-to-miss renewal dates peppered across the year to be dealt with.

All these tasks require precious staff attention and time that could be more fruitfully spent on higher-value projects.

Not for the first time, data managers are being asked to cut costs. However, industry insiders say it has not always been easy to get an accurate picture of data usage and spend and where savings can safely be made.

“You’ve got to choose very carefully what you switch off,” said Walters. “It’s not just cost-cutting”, he said, adding it is vital to optimize access to data so that different parts of the business have the information they need to consistently generate revenue and growth.

“It’s about squeezing more out of the stone and enabling your end-users.”

While most large financial institutions use subscription management systems, smaller firms may not even realize that managing their data spend and usage presents a potentially costly problem.

Insight 🕵️

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This is no longer the case, at the apex of the new platform is Optimize Insights, which uses AI to deliver the ‘whole story’ of a firm's datascape to the data manager's screen, along with actionable recommendations for cost savings and greater efficiency across all aspects of a subscription.

Real-world “do this now” suggestions will be displayed on the manager’s dashboard. “There are trends we can see by looking at the big data and all the different correlations that you’d never be able to see as a human being,” Walters said.

Not only does Optimize Insights bring together data from a whole suite of TRG Screen products, it allows users to pull in their own data from internal applications and third-party systems via API links and extensions.

“We are showing our customers a narrative about their optimization opportunities.”

The company says clients who adopt TRG Screen solutions benefit from centralized management of their subscriptions, including global agreements with data vendors and greater use of automation.

On top of that, the complete visibility that comes with Optimize Insights means licenses are allocated more efficiently and other wastage eliminated.

These measures deliver rapid improvements in return on investment (ROI), with potential savings of 10-30 percent in the first year.

For the largest institutions currently spending $500 million, that could mean savings of between $50 million and $150 million. A smaller firm spending $50 million could benefit to the tune of $5 million to $15 million.

A clear benefit of seeing the big picture through Optimize is that it becomes easier to leverage a firm’s whole spend on data in negotiations with a vendor, rather than renewing contracts piecemeal as they come due.

Compared with handling individual invoices, some TRG Screen users have saved up 80 percent.

“The company says enhanced visibility can deliver rapid improvements in return on investment (ROI), with potential savings on subscriptions of 10-30 percent in the first year.”

Managed service ✅

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Optimize combines all the power and capabilities of TRG Screen products to handle the most complex and highest value enterprise subscriptions.

However, the company acknowledges that not all data users need the same solution.
TRG Screen therefore offers a smart managed service, run by its own team of market data specialists, that can handle anything from invoicing to full management of all aspects of market data and information subscriptions.

The data market will continue to grow 🚀

It is clear that the data market will continue to grow in terms of volume, breadth, complexity and cost, while experience shows that pressures to do more with less will only intensify. Industry insiders are clear that the unavoidable first step to taking control of this rapidly changing landscape is for users to ensure they have the whole picture of their data subscriptions 24/7.

That way lies insight and the opportunity to optimize data consumption and make significant savings.

“Not only do we give you insights, we give you the real
next-generation, cutting-edge business intelligence
capability,” Mundell said.