Stairway to the Market Data Cloud: As a Service Model Comes to Market Data
The financial services industry led the digital revolution. That digital revolution, largely created by the formation of the market data industry, began by collecting and disseminating price quotes onto trading screens. Those screens transformed into data feeds that allowed the integration of applications through on-premises infrastructure. All that was a generation ago. Despite some significant technology advancements, this model remains largely unchanged. Other industries, meanwhile, have been entirely disrupted or created through the efficiencies and flexibility offered by cloud services.
The time is ripe for the market data delivery paradigm to be changed via a next generation cloud distribution model.
We interviewed a select group of senior executives (chief technology officers, chief information officers, heads of market data and heads of infrastructure) at both buy- and sell-side firms. We found that the industry is ready for a disruption in the aggregation and delivery of market data. Both the buy side and sell side agree that the industry could and should be on the cusp of a new digital revolution for market data delivery that leverages the public cloud.
TABB Group’s market outreach has found that a solid majority of firms across the spectrum of large and small bank, broker, asset manager, hedge fund and service provider are open to the idea of acquiring a cloud-based market data service to run their businesses. Seventy-eight percent of respondents offered either a straight “yes” or qualified “yes” to the question of having cloud-delivered market data for services deemed not mission critical.
The macro market drivers need to change. We believe that the capital markets cost model is unsustainable because of the high cost of regulatory compliance. What’s more, regulators have taken away the ability for much of the sell side to trade their own balance sheet. Thus, firms’ return on equity is significantly down and not growing. As a result, the sell side, which funds the operation of the markets, cannot grow its way out of its cost challenges. Firms must realize efficiencies, and the market data delivery paradigm is under review along with every other cost line.
In this context, we see non-revenue generating investment and firms limited in their ability to deliver profit. A perfect storm of challenges is creating the need for a new model.