Our previous blog on market data optimization explored the challenges associated with the efficient use of market data—one of the most costly areas of IT spending for wealth managers. In this blog we discuss actions that wealth managers can take to better control market data usage and spending.
Financial institutions continue to struggle with the efficient management of reference data, which is often sourced from multiple vendors that feed numerous (sometimes upwards of 40) internal systems. For financial institutions this means “hardcoding” interfaces between proprietary systems and vendor solutions (files or feed formats) often incorporating specific symbology (e.g., Refinitic RIC, Bloomberg BBGID) into the firm’s core workflows. The net effect of this approach is a complicated web of linkages resulting in significant inefficiency, leaving financial institutions with little or no control over data consumption and spending.
The Challenges to Today’s Environment
● The above approach to data management massively increases vendor dependency. Firms cannot easily consider switching sources because of the significant IT undertaking involved in replacing existing interfaces and relationships.
● Since market data and IT resources often report to different business lines, obtaining consensus and prioritization around initiatives that involve data optimization are challenging at best.
● The knowledge or skills required to overhaul legacy interfaces have aged out. Resources are not easily accessed or are nonexistent. This means the risk, according to market data or compliance professionals, is too high.
● Challenges associated with vendor switching exposes most firms to significant predatory pricing practices from market data providers. Market data professionals see interfaces and vendor accounts proliferate with little ability to control costs.
● Switching vendors seems impossible as firms have become dependent upon proprietary symbology which new vendors are not allowed to provide. The good news is that some new vendor initiatives around opening up symbology have mitigated this issue.
In addition, data management costs, as discussed in our previous blog, continue to skyrocket. However, there are compelling options for financial institutions looking to evolve their data management capabilities. Celent sees an opportunity to build a “middle layer” that provides wealth management firms with the ability to smoothly switch market data sources without impacting downstream systems. See Figure 1.
Figure 1: The Optimization of Market Data Consumption Through a Technology Middle Layer
Implementation takes time and commitment. But the cost savings and leverage gained by financial institutions outweighs the time and resources it takes to make this transition. Implementation Process
● Pick a vendor. One suggested approach is to start with optimizing the most expensive data subset to vendors that provide the same data for lower pricing.
● Introduce the middle layer between a few select systems which “emulate” existing vendor formats. This feature is critical as it completely eliminates the need to “recode” to a new format.
● Ensure that all data is cached using the vendor’s nomenclature in a centralized data lake.
● Continue to onboard new systems onto the middle layer, eliminating direct interfaces between systems and the specified vendor.
● At this stage—and if applicable—you can take the opportunity to optimize market data spend by caching the requested data.
● Shake and repeat with a new market data vendor.
Storing and caching reference data collected from vendors in a way that makes it easily entitled, reusable, and accessible helps to address critical goals of market data organizations including:
1.Directly reducing costs by eliminating a percentage of per security data requests.
2.Ensuring that the use of licensed data is maximized and optimized through the firm.
3.Improving compliance with vendor agreements.
Once multiple vendors are onboarded, route requests directly from wealth management systems (often legacy) to specific vendors without needing to recode.
Through the deployment of a middle layer, Celent believes that wealth managers can better manage their data, more effectively drive their business, and spend less. This positions market data as the superpower it is meant to be.