In addition to spending enormous sums to buy data, market participants also face a less talked about cost: frequent exchange-driven changes to the feeds.
This article originally was published Feb. 19, 2013.
“It takes all the running you can do to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!”
Many market data professionals must often feel like Lewis Carroll’s Red Queen, as trading venues proliferate around the globe and they struggle to keep up—not only with the growing number and variety of data feeds, but with the continual alterations that exchanges make to them each year.
In the past five years, these exchange-driven changes (EDCs) to market data feeds have more than doubled, from about 90 in 2007 to nearly 200 in 2012, according to figures tracked by NYSE Technologies, the technology arm of NYSE Euronext. And observers expect the trend to accelerate in coming years, as new regulations kick in.
Source: NYSE Technologies
Though EDCs are not widely discussed, they represent a costly and time-consuming burden for market participants, which already are under tremendous pressure to cut costs. Even before doing the actual programming work to make the necessary changes to feed-handling systems, market data customers and vendors must sift through thousands of “change notices” from exchanges—more than 26,000 in 2012, according to NYSE Technologies—in order to decide which ones require action. While some of these changes involve relatively minor programming, others entail major overhauls to networks, trading applications and feed-handlers. And the IT cost to end users is likely to escalate this year along with the number of changes, adding to the global financial market’s already huge expenditure for the data itself, which tops $10 billion annually, according to TABB Group estimates.
Many of these changes are unavoidable, as they result from the proliferation of new regulatory requirements. The SEC’s new “limit-up/limit-down” directive, for example, establishes a mechanism that prevents trades in individual exchange-listed stocks outside of a specified price band. This mechanism, which is planned to take effect in April 2013, is intended to replace the existing single-stock circuit breakers. To comply, market data professionals will have to update feed-handling platforms so they can parse the new information and make it identifiable to the application developers modifying trading, portfolio and risk management systems.
Another SEC directive slated for implementation at the same time lowers the threshold for triggering market-wide circuit breakers that halt trading in all U.S.-listed securities, although it also shortens the markets’ downtime. A third initiative changes the basis for measuring these market movements from the Dow Jones Industrial Average to the S&P 500 Index, which will result in message specification and protocol changes in data feeds.
But regulatory requirements aren’t the only drivers of EDCs; many data feed changes arise as exchanges look to gain a competitive edge by launching new markets, enriching their proprietary data to make it more useful to clients or by adding new classes of data. They extend their operating hours or change their scheduling. They replace outdated feeds and platforms with new ones offering lower latency and improved networking protocols. They merge market data feeds as they merge with former competitors after a buyout—the feed from one exchange may be subsumed into the partner’s, which has to radically rework its content and protocols to incorporate the additional information or products.
In 2012 NYSE Technologies delivered eight complete feed handler replacements as a result of major exchange-driven technology overhauls, and already in 2013, market data users must revamp their technology to accommodate a slew of market data upgrades by providers. In Q2 2013, the Hong Kong Stock Exchange is expected to launch its new Orion Market Data platform, replacing its legacy market data feed technology. In addition, LSE Group has announced plans to decommission its legacy feeds and consolidate the LSE, Turquoise and Borsa Italiana feeds through the new LSE Group ticker plant. These are significant overhauls that will require widespread changes for many members and software vendors.