As a result of a regulatory push following the financial crisis, the 2010s saw a technological revolution across financial markets gather pace. Work done by incumbent and new trading venues, as well as innovative approaches to price discovery, saw electronic and algorithmic trading rise. These new strategies now underpin price discovery, distribution and trading/execution across all asset classes in financial markets.
During the past decade, market operators and vendors realized that data was no longer just a by-product of trading. Rather, information had become the cornerstone to an efficient execution and trading strategy and, amongst other things, used extensively for risk management, back-testing, hedging and measuring the costs and quality of execution.
A consequence of this has been an exponential growth in demand for data, leading to the rise in offerings from numerous operators and subsequent complaints about the need to ‘unbundle’ legacy data packages.
The rising costs and complexities associated with data packages, coupled with client demand for focus, granularity, value and efficient distribution, led to Tradition – one of the world’s largest interdealer brokers – revamping its market data and information services division.
Its re-launch in 2019 saw it operate under a new brand, TraditionDATA, with Scott Fitzpatrick, previously head of market data at rival interdealer broker GFI Group, at the helm.
Fitzpatrick is also CEO of TraditionSEF in the USA, which ensured he had intimate knowledge of the global regulatory landscape and how the changes from 2013 (namely, the introduction of regulated venues such as SEFs under the U.S. Dodd-Frank Act) affected trading and data requirements.
But the question remains, is now the right time for the industry to reassess the way it buys and uses market data? Traders Magazine Editor John D’Antona Jr. sat down with Scott Fitzpatrick, Head of TraditionDATA, to find out why he subscribes to this view, and what the business is doing to enhance the market data industry and consumer experience.
TRADERS MAGAZINE: How long have you been with TraditionDATA?
Scott Fitzpatrick: I formally took on the role as head of TraditionDATA in late 2017, but have worked for Tradition in various roles since 2012, including being the Chief Executive of Tradition’s Swap Execution Facility (SEF) in the U.S.
TM: What has been your priority since being appointed to your new role?
Fitzpatrick: It’s fair to say that over the past decade, the global OTC derivatives industry has undergone significant reform and all ancillary operating areas – new technologies, infrastructure and data – have seen changes introduced that will help shape the industry going forward.
As such, my initial approach was to take what was a successful data business that had a lack of focus, and mix it up. I took a long hard look at what we were doing, what we thought we stood for, what we wanted to be and to whom.
This involved deciding what changes we would make to take the business to a new level, in a way that spoke to the technological “new world order” and how the supply and demand chain was re-shaping the future. The timing was good as we didn’t have the legacy issues that our competitors had, which allowed us to be nimble and innovative.
The short-term goals were to reshape the sales side of the business and build that out, which I think we have done successfully under the watchful eye of James Watson, our Global Head of Sales.
We are now investing in our product capability, allowing access to new market data, enhanced analytics and product granularity. We also focused heavily on product availability – giving clients choice on how they want to consume our data. In short, we went out of our way to make it easier for clients to buy what they specifically need in a manner of their choosing.
TM: What prompted this push and how did the market data industry operate previously?
Fitzpatrick: Listening to our clients is the simple answer. The market data industry now faces similar challenges to those faced by the derivatives industry post crisis. Both industries operated in more or less the same way for several decades, and market participants had become accustomed to existing practices being ‘the way it is and always has been’.
Despite a desire for change, there has not really been any substantial alterations in product ‘package’ structure, pricing or operational models, particularly in the interdealer space. Data was poorly licensed with a lack of clarity around use and cost, and often ‘bundled’ into large, unwieldy packages and sold at ‘discounted’ prices to reflect the client’s intended use. This made it very difficult for clients, as inevitably, they are signing up for a tremendous amount of data they don’t need.
In effect, what this means is that clients are forced into a situation whereby they run the risk of ‘overuse’, opening themselves up to compliance and legal risk. They also have to go through the arduous and complex process of unbundling that data and deriving valuable insights from it. Everything about it was costly and inefficient – no one wants to operate under a model like that.
TM: So what’s the plan with TraditionDATA and how is your approach different?
Fitzpatrick: Our mission at TraditionDATA is to change attitudes relating to how market data is distributed, acquired and consumed. We aim to do this by introducing progressive models as alternatives to the status quo. We are injecting much-needed innovation and choice by introducing a new approach to buying and using market data, and the early signs have been extremely positive.
Other than the obvious objective of producing a high-quality product – which given our market-leading brokerage position is something I think we do well – there are a few key areas that are critical to our user community.
Let me explain.
Access through a multitude of market leading technology and distribution channels: The technology landscape in terms of price discovery and trading is changing at a rapid pace. The creation of data is expanding at a rate that hasn’t been seen before and demand for this is growing exponentially. It is unrealistic to believe that the way the producers and users of this data interact doesn’t need to change.
As a result, we have taken the approach of providing data to our clients over channels of their choosing, whether that be via global vendors, direct from our own data backbone (INTEGRATE), direct from our platform APIs (typically latency sensitive data) or via the cloud.
Choice through granularity of product structures: We are committed to continually reviewing our product structure as the needs of our customers change. Big cumbersome data packages are no longer acceptable in this world. Clients want granularity and the ability to focus on the areas of the markets that they operate in.
We have adapted our commercial model to provide customers with a unique degree of flexibility and choice across our product-suite, allowing them to consume and license the data relevant to their businesses. Clients can select and price data broken out by asset class, product, sub-product, region and currency, ensuring they buy the specific data they need – nothing more, nothing less.
Economic flexibility: Value for money is the best deal you can get and this is the key value proposition. Big data sets make it difficult for consumers to see the value in the information they are being asked to buy. They must go through the complex process of unbundling and analyzing the data before they can identify and extract that value.
Data managers across the industry are under pressure to cut costs. However, I don’t see their objective as being cost-cutting alone, even though the outcome may be reduced spend. Rather, I see their objective as assessing value and getting to a place where they can stand behind their decisions from the basis of value – not just ‘negotiating a good deal’.
This comes at a time when a passionate debate is underway across the industry about the cost and transparency of market data packages. We think we are heading in the right direction.
TM: There are many other data providers out there – so why Tradition?
Fitzpatrick: Other than the things I have mentioned previously, there a few things I think are relevant.
First and foremost, the core element of our service is that we provide proprietary data. It is sourced from the brokerage divisions of our parent company (CFT) offering an unbiased, independent view of the global derivative, energy and commodity markets. We build on this data by applying world-class analytics to develop enhanced yield curves and volatility surfaces.
As a division of one of the largest intermediaries of OTC derivatives globally, our reach into areas where price information is scarce and valuable is unquestionable. Tradition has a long history – decades, in fact – of arranging and managing price information in the form of liquidity and trade execution. It operates in 29 countries globally and covers pretty much every OTC derivative product.
In many cases, it is the leader in these markets. More than 2,000 brokers facilitate trading between thousands of counterparties around the world across a range of liquid and illiquid financial, energy and commodity products. This liquidity is managed and executed through a mix of voice, hybrid and electronic trading facilities. Our tenure in the markets has also resulted in a wealth of historic data being stored in our global data centers.
Secondly, our technology base in terms of capturing, collecting, managing, enhancing and distributing our data has improved immensely over time. We are widely recognized as running the best platforms in significant global markets like interest rate swaps and FX derivatives.
Thirdly, our independence in the global trading structure is key. Tradition is a firm that operates at the epicenter of most OTC derivative markets, but does not take positions or trade for its own book. This provides an agnostic approach to price discovery, giving our clients the comfort that they can meet many of their regulatory requirements when using our data to perform valuation and risk functions.
This data will be critical as new processes like FRTB come into full effect. Likewise, data from electronically-driven trading platforms Tradition operates, like Trad-X in global interest rate swaps, are key contributors to global benchmarks like the ICE Swap Rate.
Finally, I would point to the fact that, as one of the most significant incumbent providers of intermediation services in the global OTC markets, we are at the heart of new market developments no matter what product or what region they come from. The global move away from LIBOR is a great example of this. Across our global interest rates business, we are seeing new risk-free-rates develop and start to trade (SOFR, ESTR, SONIA, SARON, TONAR, HONIA, SORA, etc.).
As a firm at the heart of this developing market, and one of key firms in the price discovery process, Tradition has access to information which is of critical importance to holders of LIBOR-based bonds and other risk products such as issuers of new debt and related products. As they see their risk profiles migrate to a new model, our data can play a key role in facilitating this transition.
TM: What does the future hold for the market data industry? How will the landscape change over the next decade?
Fitzpatrick: Irrespective of where we ultimately end up, it should be a priority for any responsible business leader to continually update, modernize themselves and adapt to technological advancement and consumer behavior.
For the market data industry, it is going to be a continued push deeper into the areas previously mentioned. New technology, and the resulting ability to collect more data, means that providers and consumers must find increasingly creative ways to engage with each other.
One could easily argue that too much data is now available. The challenge, therefore, is for users to find the best way to consume and derive value from that data.
For providers of data such as TraditionDATA, it will become increasingly important to help our clients identify and focus in on that value by making our data available through flexible product packaging and pricing models.
Looking further ahead, ‘data lakes’ will become ‘data oceans’. Aggregation will continue at pace and service industries will develop around these ‘oceans’. There is every reason to anticipate new commercial models evolving in the market data industry.
There are parallels with other industries such as the music and entertainment industry; we will see ‘on-demand’ use cases develop, users will ‘dip in and out’ of the oceans and seek commercial and data availability models that align with those use cases.
It goes without saying that TraditionDATA fully intends to keep pace with these developments and give our clients access to market-leading data in a manner that suits their needs.
