The Evolution of the Japanese Market Data Industry: Faster and More Diverse
Data needs and innovation in Japan are expected to sustain a healthy annual growth rate of more than 10% until 2013, due to greater fragmentation and buy side adoption of tools like algos, smart order routing (SOR), and high frequency trading.
The investment information industry in Japan has come a long way. Celent estimates total market data spending in Japan to be about US$625 million in 2010, with spending on secondary data and tools at US$528 million and third party spending comprising approximately 10%.
The Japanese market data industry is an interesting case study as a potential blueprint for the development of market data in other Asian countries like China, India, and the emerging markets. Trading and data management developments in Asia have lagged behind the rest of the world, but with the Tokyo Stock Exchange’s new arrowhead equities system, they are playing catch-up.
Findings of the new report, The Evolution of the Japanese Market Data Industry: Faster and More Diverse, include major demand trends (and expected supply responses) from Japanese end users:
- In the face of greater fragmentation and higher rates of buy side adoption of advanced trading, data vendors need to standardize protocols and costs for adding these potential new execution venues to facilitate higher ROI (applicable to upgrading and changing data feeds as well).
- The need for accurate, complete data—the golden copy—due to more granular and frequent reporting pressures from Basel II, IFRS, etc. Both the buy and sell sides have commented that they would like vendors to “stand by” their data quality and accuracy.
- With the growth of OTC derivatives trading volumes in Japan, independent, verifiable pricing data for hard-to-value complex instruments is seeing strong demand from both domestic and foreign funds. As one data manager at a large foreign buy side firm puts it, it is essential to “cut it correct in that asset value.”
- In the climate of cost optimization, capabilities to track data usage by user and business unit to increase the efficiency of data consumption are also on data managers’ priority lists.
- The use of cheaper third party outsourced software and services like enterprise data management (EDM) solutions have also been on the rise as CTOs and CIOs try to balance the growing data needs with the tightened resources.
“Localization and customization is the decisive factor for targeting end users in Japan and the rest of Asia, where language capabilities, support, and regulatory formatting to meet local user requirements are instrumental,” says Chermaine Lee, Celent analyst and author of the report.