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The Trading Mesh

Reducing Market Data Expenses How Custom Applications Can Supplant Market Data Terminals

Wed, 14 Mar 2012 18:50:54 GMT           

As investment management firms look to cut costs in todays highly competitive environment, market data expenditures are an obvious target. One of the largest outlays within this cost center is market data terminals. The advent of market data terminals in the mid-1980s was a huge step forward, combining previously scattered market data into a single interface. However, this one size fits all approach is no longer in step with the diverging needs and budget concerns of investment management firms.

There is now an emerging trend towards suit-to-fit internal custom applications that focus on the unique requirements of various departments within a firm. These applications are often fueled by on-demand market data delivered over the cloud. When executed well, this combination delivers superior workflows that suit the firms exacting needs, while also reducing overall market data spend.

Why are market data terminals out of step?

Market data terminals dont align with the evolving business needs of investment management. Terminals target the fat part of the bell curve, but as firms increasingly look to differentiate themselves with new strategies their needs become more unique, the curve flattens, and terminals become less relevant. In addition, in terms of data management, firms are moving towards a holistic and scalable approach that provides increased consistency and transparency, leaving behind legacy market data silos.

Of course many firms have been working on this challenge for years now, creating in-house data management solutions to serve the needs of internal and external constituents. When these systems take hold, it enables firms to focus on improving internal workflows, from pre-trade analysis and trading, to reporting and compliance. As custom applications for each of these areas are developed, it decreases the need for market data terminals.

Another important factor to consider is the outmoded pricing structure of market data terminals. The recent economic downturn provided a catalyst for firms to re-examine the value terminals provide. While vendors have added a wide range of datasets to their terminals over time, that data comes at a steep price. Subscription costs for industry-leading market data terminals now typically run from $10,000 – $20,000 per user per year.

This one-size-fits-all pricing structure is expensive and not terribly customer friendly. Traditional market data terminal pricing structures fail to account for the fact that:

many users only require access to a limited range of datasets
many users only require a limited overall quantity of data
terminal subscriptions are often underutilized due to personnel turnover

With emerging technologies, this pricing structure is likely not sustainable as it benefits the entrenched business models of market data vendors rather than their customers.

The rise of custom on-demand applications

One of the key benefits of new internal data management systems is that firms can add a layer of custom proprietary applications to enhance a wide range of workflows, including research, portfolio management, trading, compliance, reporting, and more. With todays advanced technologies and cloud computing, its easier than ever to develop in-house applications that replicate or surpass the analytical capabilities provided by market data terminals.

Take for instance the integration of market data. In the past, incorporating market data into proprietary applications was a massive headache, requiring the time-consuming parsing of antiquated data feeds and flat files. With a cloud-based approach comes flexibility. Data is available instantly, pulled in from the cloud via web APIs with just a few lines of system-agnostic code. No extra infrastructure required.

Also underpinning the trend towards proprietary applications is the very real cost savings versus market data terminals. Instead of an exorbitant terminal fee for every user regardless of their needs, on-demand market data delivered over the cloud is based on actual usage. This means that custom apps and portals designed to a firms exact requirements can result in much lower overall market data spend.

What does the future hold?

Theres no doubt that market data terminals will continue to have a place in the market data ecosystem for the foreseeable future. However, as firms differentiate with new strategies and emphasize the preservation of their margins, they will increasingly look beyond terminals to the efficiency and custom fit of proprietary applications fueled by on-demand market data from the cloud.

 

This is thethird post in our Top 5 Investment Management Technology Challenges Addressed by the Cloud multi-part blog series. Be on the lookout for our next post, Creating branded, data-rich mobile apps that differentiate.

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For more info on how Xignite’s market data cloud can improve your business processes, request a consultation with one of our data experts.

To test drive our market data APIs and experience for yourself how easy they are to integrate into your applications, request a free trial.

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