Investment Operations

Crisis Highlights Importance, and Expense, of Market Data Streams

Securities Lending and borrowing

The onset of the COVID-19 crisis is highlighting the importance of market data infrastructure for both buy-side and sell-side firms.

Accurate, real-time data feeds are essential to most trading businesses and even more critical now as firms navigate unprecedented volatility.  With traders operating remotely, previously a rare occurrence, even more stress is being applied to the distribution and infrastructure supporting data feeds.

According to a new study from Greenwich Associates, banks, brokers and other sell-side firms pay an average $140 million per year for market data. Asset managers, hedge funds and other buy-side organizations pay about $44 million per year. These estimates include fees paid for consolidated feeds, direct feeds, terminal/desktop products, security/reference data, and index data. Firms also incur additional expenses for infrastructure, support, connectivity, and maintenance costs that can amount to half or more of annual data purchase spending.

Understanding where in the workflow data feeds are being implemented and which users are accessing the data is essential for any firm monitoring their usage of market data. Despite this, only 16% of market participants are satisfied with their market data distribution and reporting systems. With users and regulators alike scrutinizing market data costs, data providers can greatly benefit their customers by helping streamline this process.

“Third-party data providers and aggregators account for nearly 75% of market data budgets, although a third of this spend is ultimately passed onto exchanges for their direct feeds,” says Brad Tingley, Market Structure and Technology Analyst at Greenwich Associates and co-author of Market Data Budgets—Spending Trends and Outlook.

Regulators Taking a Look
It’s unclear how the COVID-19 crisis will affect the timing of an ongoing regulatory review of exchange fees. In February, the SEC proposed modernizing the infrastructure for “collection, consolidation, and dissemination of market data for exchange-listed national market system (NMS) stocks.” The exchanges and SEC have continued battling in the U.S. Court of Appeals over the proper scope of SEC review on market data fee filings.

“Although rising costs are a legitimate concern for all market participants, it’s also important to note that the infrastructure underlying financial markets, and market data in particular, have been remarkably robust so far through the crisis,” says Shane Swanson, Senior Equity Analyst at Greenwich Associates and co-author of the report. “That’s an important achievement, and one that should be factored into any discussion about the costs and value of market data.”