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Managing firmwide market data costs, capabilities and governance

Addressing rising market data costs and business and regulatory demands can create efficiencies and a competitive edge in capital markets.

    In brief
    • Market data is increasingly important to capital markets businesses, and Risk and Finance teams – but is also one of the largest non-compensation costs.
    • Centralizing purchasing, management and distribution of market data can lower costs, create efficiencies and enhance data consistency.
    • Modern technology can simplify data ingestion and distribution and facilitate entitlements, controls, and user self-service tools.

    Market data is a multifaceted resource for capital markets firms — and a significant expense. From front-office pricing, to trading and analytics, to independent price verification (IPV), risk management and stress testing, data availability, consistency and quality are key business enablers and differentiators. However, for most firms, market data is also one of the largest non-compensation expenses. Current capital markets business trends are driving the need for more data — for deeper and more tailored client content and analytics; more sophisticated execution algorithms; more granular risk management, capital calculation and regulatory reporting; and more frequent IPV. In this environment, capital markets firms are looking to achieve four goals: (1) centralize the purchasing and vendor management associated with market data, (2) ensure that various user constituencies have access to shared, accurate and consistent data, minimizing unnecessary duplication or silos, (3) use modern technology platforms to ingest, process, catalog and redistribute market data, and (4) impose firmwide governance and controls on their market data and related processes. Achieving these goals requires close coordination of market data users with procurement, finance, data, technology, and other functions.

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    Centralizing vendor management

    Centralizing contracting, purchasing, usage tracking and accounting under a market data group helps manage costs.

    As capital markets businesses and operational functions expand and evolve, firms’ utilization of market data typically grows organically through separate data purchases and technology development. Generally, if data users individually select and procure their data feeds, costs can quickly escalate because of redundant purchases, inefficient data storage and suboptimal contracting practices. The first step in controlling market data costs is centralizing vendor management, contract negotiations, usage tracking and accounting. This will help manage costs, even if data expenses are allocated to individual business budgets. It will also enable identifying savings “quick wins” by addressing duplicate or unused services and evaluating vendor contracts that may be inadequately sized or structured. Additional opportunities for savings will include exploring user areas that could transition to more cost-effective data sources, and leveraging existing vendor licenses and/or negotiating more suitable terms. Various technology-based tools can be used to track expenses and allocations, data usage, and user entitlements and adherence to vendor licenses.

    In the absence of centralized technology to track data usage, firms can apply a combination of periodic user certifications, close coordination between the market data team and data “stewards” within the user areas, and technology-based tools that track and categorize data requests from applications.

    A successful market data group will need to understand — or have close interaction with subject-matter advisors who understand — how specific market data is used by individual groups and applications. It will also need close coordination with procurement, legal and technology teams, and will need executive buy-in to have the clout to guide data users toward the firm’s preferred vendors and shared data sources. A market data group typically also manages adherence to data budgets, compliance with vendor licenses, and monitoring and execution of applicable data governance.

    Market data accuracy, accessibility and consistency are competitive advantages. Providing flexible market data tools, minimizing reconciliations, and avoiding pricing and risk management errors will enhance client service and operational efficiencies and protect the firm.

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    Supporting business, finance and risk management users of market data

    Accurate and consistent market data is strategically important and has the potential to support business growth, risk management and reporting.

    Market data users include trading, banking, research and financing businesses; accounting and IPV groups; risk management; model development and testing; and regulatory reporting groups. These different groups require market data of varying frequency and recency, granularity, and corresponding to varying time periods. Historically, different groups have often sourced their market data separately, from different vendors, and often as part of other software applications and services. This can create challenges, such as the need for an extra reconciliation between the risk team’s daily metrics and those of the business, or even a potential regulatory issue if reported data are not consistent.


    Business users 


    Front-office applications and analytics rely heavily on real-time data such as prices, spreads and yields to make informed trading decisions. Access to broader market information, including volumes, open interest and economic indicators, is also needed to understand market trends and dynamics. Execution algorithms and e-trading desks need large volumes of low-latency, real-time and historical market data to support trading, develop and test effective trading strategies, and produce execution quality analytics. Investment banking and research teams require broad access to static and historical corporate, market and sector data. 


    Pricing, valuation and IPV 


    Timely, accurate and consistent market data is crucial for pricing and valuation. Daily market data is carefully examined alongside trader marks to calculate end-of-day valuations. Product controllers and finance teams rely on market data to compute T+1 profit and loss, and to support IPV variance analysis. Importantly, inconsistencies in data used across these functions can lead to frequent reconciliations and pose financial risks to the firm. Ensuring the use of consistent and reliable data is essential to maintaining accuracy and mitigating potential risks. 


    Risk management and stress testing 


    Extensive historical market data, reflecting critical stress periods, is crucial for robust risk management and stress-testing capabilities. Near-real-time market data is required to support intraday risk monitoring activities, while spot market data is necessary for calculating risk metrics such as sensitivities. Historical market data needs to be accurate and enable the construction of continuous historical time series and calibration of risk factor shocks, for both business-as-usual and regulatory stress testing.


    Model development and validation


    Developing and testing pricing, risk management and capital models require consistent and reliable market data across a range of asset classes and instruments, as well as a common set of frameworks to address and remediate data quality challenges. Meeting current regulatory requirements also necessitates a broad range of market data: For example, the Fundamental Review of the Trading Book (FRTB) is an overhaul of market risk capital requirements; end-of-day market data and historical market data time series are critical components for its Internal Models Approach (IMA) development, including Expected Shortfall (ES), Stressed ES, Profit and Loss Attribution Tests (PLATs) and IMA Data Principles.


    Firms that use high-quality historical market data time series in their risk and capital models may also realize financial efficiencies by mitigating the impact of inaccurate risk factor modeling and reducing unnecessary capital requirements.


    Trading, analytics and reporting 


    Trade reporting and execution analytics are subject to heightened regulation and scrutiny, e.g., in Consolidated Audit Trail (CAT), Dodd-Frank, Markets in Financial Instruments Directive (MiFID II) and European Market Infrastructure Regulation (EMIR) — market data is crucial to these processes. Reporting requirements necessitate aggregation of data across different products and asset classes. Consistent market data, integrated with firm reference data and client transaction data, is essential for generating accurate and timely reports, as well as providing value-added client analytics. By combining market data with other relevant data sets, firms can also enhance their business reporting capabilities and derive valuable insights for clients.

    Achieving long-term cost savings often requires technology that can efficiently ingest, store and distribute widely used data. This includes establishing data catalogs, “marketplaces,” and self-service user tools that facilitate easy access to and analysis of data.

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    Modernizing technology platforms and capabilities

    Adopting centralized data management technology can drive efficiencies and business benefits.

    Unlocking the full potential of the firm’s market data assets

    Centralizing market data management technology enables better control, accessibility and utilization of data across various functions and teams. This leads to potential savings, improved decision-making, enhanced customer insights, and the ability to seize opportunities in the market more effectively. 

    Key functionalities include:

    • “Golden source” data provisioning — Firms should strive to create and provision single trusted sources of market data and reference data to minimize errors, costs, and redundant processing and reconciliations. In the interim, data fabric or other virtualization techniques can be used to improve market data usability.
    • Unified taxonomy and data model — Cross-product business reporting and analytics require a shared taxonomy for data, which will also help the business avoid future costs and complexity stemming from parallel but inconsistent systems.
    • Data marketplace — Modern technologies offer data catalogs, marketplaces and “no-code” reporting tools to enable users to discover, analyze and self-serve data based on entitlements. This creates a culture of users serving as informal “data scientists” and streamlines development of new content and analytics — and helps the business avoid additional technology costs and redundant data purchases.
    • Cloud technology — Cloud-based technologies enable enhanced scalability, speed, reliability and accessibility. In addition to providing shared, consistent ingestion and access, (e.g., application programming interfaces (APIs)), these technologies enable robust entitlements, governance and usage tracking of market data.
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    Integrating market data governance and controls

    Market data controls include a combination of quantitative and qualitative measures, involving both automated processes and human oversight.

    The governance and controls framework required for market data has become increasingly comprehensive and detailed. The convergence of regulatory requirements, internal risk management and heightened standards for reporting, and the need for automation has significantly raised the standards for data governance, (e.g., Basel Committee on Banking Supervision (BCBS 239), FRTB Internal Model Approach (IMA) data principles). 

    Market data controls encompass a combination of quantitative and qualitative measures, involving both automated processes and human oversight. Establishing a clear target operating model and defining a responsibility assignment matrix for data management are essential to cover the entire lifecycle of market data. With the growing volumes, frequency and complexity of market data, many controls and data quality monitoring tools need to be automated and integrated with the technology throughout data capture, transport and aggregation/use. This integration allows for efficient and effective monitoring and management of data controls and facilitates the seamless flow of high-quality data throughout the organization.

    Implementing comprehensive and well-integrated controls and monitoring mechanisms is crucial for maintaining data integrity, regulatory compliance, and mitigating the potential risks associated with market data.

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    Integrating market data governance and controls

    Market data controls include a combination of quantitative and qualitative measures, involving both automated processes and human oversight.

    Managing firmwide market data costs, capabilities and governance is a journey. The following are useful first steps: 

    1. Cost reduction

    • Inventory market data used in the organization and collect metadata. 
    • Rationalize recent historical spend, types of vendor contracts, internal allocation methodologies, and processes for selecting new market data vendors, products and technology. 
    • Understand expected market data needs of business, risk, IPV, fair-value level-setting, and other user constituencies.
    • Identify areas to reduce the costs of market data spend, including vender rationalization, consolidation, enhanced technology, and others.

    2. Capabilities and governance 

    • Develop a technology strategy for market data physical centralization or virtualization through data fabric to support firmwide market data sourcing and consumptions. 
    • Review the existing governance and controls associated with market data and their historical efficacy; develop a strategy to enhance the governance and consider integrating controls in technology design. 
    • Develop a phased plan for transforming market data infrastructure and operating model that combines near-term quick wins with longer-term investments that will create savings and/or enhance capabilities.
    Jonathan Firester, Jan Zhao and James Liu authored the article. Joseph Sommer, Anuj Mallick and Shubhrata Bhargava also contributed to the article.


    Accurate, consistent and easily accessible market data is increasingly important, but also costly, to capital markets businesses. Many firms are looking to manage the purchasing, governance, ingestion and distribution of market data centrally. This can create savings opportunities; enhance operational efficiency, data quality and usability; and provide a competitive edge.

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