In late September, WatersTechnology and FactSet held an exclusive, off-the-record roundtable discussion focusing on how capital markets firms can make the business case for subscribing to market data-as-a-service solutions. A number of tier-one and tier-two investment banks, a market maker, and a proprietary trading firm were present.
Prior to the event, all 12 firms that had accepted the invite were sent a three-question survey to gauge how much they were outsourcing their data management needs to a specific vendor or service provider. Although the survey was not specific to market data as-a-service, eight of the 12 invitees spoke to the prevalence of managed data services as a whole. The results revealed:
- 75% (six out of eight) already make use of a managed data service or services
- 75% (six out of eight) believe their firm will increase its use of managed data services going forward
- Just less than 90% (seven out of eight) see operational simplicity and reduced data management requirements as the primary benefit of a managed data service compared with pure cost considerations
Key Themes and Takeaways
- Wait and see: The consensus from attendees was that the market data as-a-service model is still very much in its nascence and that capital markets firms are still in the “gradually” phase of its adoption. The “suddenly” phase is likely to follow within the next 12-18 months.
- Try before you buy: This issue was cited by a number of participants during the course of the roundtable, and for good reason: Proofs of concept where firms can familiarize themselves with the product or service for an extended period of time―up to six months in some cases―are now expected across the industry. One attendee was keen for their firm to establish a “sandbox” environment where it could “play” with the market data and develop an intimate understanding of the specific use cases of the service. The reality is that most proofs of concept carried out by data and technology providers result in sales―unless the service in question is deemed unsuitable or substandard.
- Vendor lock-in: Capital markets firms raised vendor lock-in as a perennial issue when considering a relationship with a new data or technology provider. Firms are looking for collaboration and a genuine partnership as opposed to a business arrangement underpinned by contractual obligations. They’re also looking for as much standardization as possible to ensure they can exit the relationship safely and without fuss.
- Responsiveness: The theme of vendor responsiveness―the speed and general amenability with which a service provider/vendor responds to clients’ inquiries/requests―was present throughout the hour-long discussion, highlighting just how important this issue is for all capital markets firms.
- Use cases: Attendees suggested that market data as-a-service providers identify clear use-cases for their data and/or services rather than approaching capital markets firms with a generic “take it or leave it” approach. Business strategies are built on specific use cases and without these, end-users are unlikely to commit to any new services. Services must also offer a compelling value add, such as innovative technology or enterprise cloud access, to even be considered.
- Pricing: As expected, pure price considerations were cited as one of the key criteria driving firms’ buying decisions. All the research carried out by WatersTechnology over the last 12-18 months indicates that technical considerations and a vendor’s flexibility, amenability, and experience are more important to users than pure cost considerations. However, one of the tier-one investment banks at the roundtable reported that cost considerations trump all others.
- Heavy lifting: Attendees unanimously agreed that the most significant benefit of having a managed data service is that the vendor/service provider takes care of all the “heavy lifting” with respect to data management, normalization, and delivery.
- Vendor-agnostic or standardized data model: The word “utopia” was mentioned on several occasions during the session, most notably in connection with the industry settling on and adopting a standardized data model. The model’s objective is to rectify a range of user issues involving data consumption. Since the financial services industry doesn’t have a great track record of agreeing to and complying with standards, this issue will likely always remain a pipe dream.
- Time-to-value: The speed with which capital markets firms can onboard new market data and feeds is one of the most notable advantages of a managed service, according to attendees. Capital markets firms are increasingly looking for minimal delays between signing contracts and activating the service in a live production environment.
- Licensing agreements: This is a huge issue for all capital markets firms. However, what is also essential for firms is to be able to fully understand the licensing agreements associated with such data, which can be a challenge even for the most experienced and well-resourced firms. Knowing what firms can and cannot do with the data they consume is far from a trivial task and an area where vendors should look to provide clients with guidance.
This article originally ran on WatersTechnology.
This blog post is for informational purposes only. The information contained in this blog post is not legal, tax, or investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.
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