The most active and highest-speed traders face a sometimes-existential dilemma regarding market data: they need more of it, and its price is markedly higher than it used to be.
Exchanges can provide a full suite of raw data chronicling executed trades, but that’s the equivalent of a rack rate for a premium product.
An alternative to procuring the data necessary to support a trading desk, while keeping costs in line, is to tap a trading-technology firm to act as a conduit between the exchange and the end consumers of the data.
“Cost savings can range from 25-75% off the raw feeds,” said Michael Beaver, director of business development at Lime Brokerage. “Lime has been active with many of the exchanges, including Nasdaq and the New York Stock Exchange. We have created a managed data solution, where we take in all the raw data, repackage it and then distribute it to our clients in a lower much more affordable price.”
“When we go out and talk with our customer, one of the key topics is the high price of data,” Beaver said. “Everyone is looking for a solution.”
The volume of market data has exploded over the past decade, amid fragmenting markets and technological advances that have enabled more firms to seek competitive advantage via rapid-fire trading. Data must be received and utilized at sub-millisecond rates, and for some practitioners of quantitative and systematic trading strategies, data is the second biggest expense, after payroll.
For exchange operators, market data has ascended from a sleepy business unit as recently as 15 years or even 10 years ago, to one that can generate more than half of the total revenue.
“It used to be if you wanted to find the market data people, you passed by the fancy office, walked all the way down the hall and looked in the room behind the restroom,” said Chris Bartlett, partner at quantitative trading and research firm QuantMass Capital. “Now market data is basically front and center.”
Exchanges need to walk a fine line. As for-profit entities, they need to maximize profit from sales of market data, while at the same time not pricing some of their best customers out of the market. One approach to this challenge is tiering data offerings.
“It's in our best interest to make sure that the markets are as transparent as possible, and everyone has access to the same information,” said Oliver Albers, head of sales for global information services at Nasdaq. “In that regard we've really been innovative in terms of giving different options for subscribers to utilize our data. “
Nasdaq’s Managed Data Solution looks and acts like a data feed but at just a fraction of the cost, Albers explained. The product “really has lowered the total cost of consuming market data for a firm using it in non-display form (in which a server, rather than a human trader, consumes the data), reduces the administrative burden and significantly lowers the barrier to entry for smaller firms,” he said.
“From our standpoint as a content provider, we're all about giving our clients choice, letting them make a decision in terms of what data offering best meets their needs,” Albers continued. “That could include co-locating in our data center and consuming direct feeds from us, or we do a lot of work with firms like Lime Brokerage where they are the value-added re-distributor of our information and maintain the relationship with the end subscriber.”
Those end subscribers will pick and choose market data products roughly in line with their trading speeds, i.e. the more critical speed is, the more premium product is needed.
“It all depends on the latency profile of the customer,” said Beaver of Lime. “Certain customer types will always require the faster and more expensive raw feeds. Most systematic traders know they can't compete in that space because the barriers of entry are too high. They are comfortable with the Lime product, which has a little bit of latency, but is a lot less expensive and it performs right for them.”
Feature image by /Dollar Photo Club