Fees charged by exchanges for market data form a central part of the debate over market structure, but a less-publicized aspect of market data usage revolves around how consumers of data account for data usage as specified by their contracts with market data providers such as Thomson Reuters, Bloomberg and Interactive Data, as well as some niche providers and the exchanges themselves.
Even some sophisticated banks and hedge funds still use relatively antiquated, error-prone processes in accounting for their data usage.
“Since the content is delivered digitally, there are entitlement systems that control how firms access data,” Tom Etheridge, managing director of market data at Jordan & Jordan, told Markets Media. “On a Thomson Reuters feed, there may be 200 different exchange data providers, and all of them have their own terms and conditions for payment and reporting. It's a struggle for firms to ensure they’re capturing all usage and reporting it correctly."
Further, within the market data industry, content providers have contractual rights to audit a firm for whether it’s reporting and paying for its data correctly. “A lot of these processes at different firms tend to be manual, where they have a subject matter expert running these processes manually,” Etheridge said. “Quite often, they're not well-documented.”
Jordan & Jordan has launched a Market Data Reporting (MDR) managed services aimed at global investment banks, hedge funds, e-brokerages, and any other type of company that has to report market data usage.
“We have awareness of the rules for the different content providers, so there may be savings opportunities out there,” Etheridge said. “Firms may be over-reporting and we can identify that and get them their savings. Through the New York Stock Exchange there is a process for recovering duplicative data feed, called MISU [Multiple Installation for Single User], and we help firms implement that and save money through that.”
MDR is designed to eliminate errors in the reporting process through use of automation and implementation of operational best practices such as run books, maker/checker and post mortem processes.
A 'run book is essentially a checklist of manual processes which are highly documented. Maler/checker is a technique borrowed from anti-fraud practices used by banks, whereby every transaction is checked by two people.
The third operational best practice is post mortems. “There will be errors, there will be incidents in any process,” Etheridge said. “The question is: when they happen, do you go back and review, find the root cause analysis, and implement tactical and/or strategic remediations to make sure that particular error never happens again?”
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