Why choosing a market data partner is an essential strategic decision and is much more than about data and technology?
We will no longer eat a piece of chicken unless we can verify where it came from and be sure of the reputability of that source market data should be no different. Market data is critical to the success of financial services providers. Choosing a data partner is an essential strategic decision; it is a multi-faceted process that means making sure your chosen provider has all of their bases covered. It is about much more than data and technology. The right partner must have a good cultural fit with your organization. They must understand your goals and be up to date on all best practices.
New data sources often need to be added at short notice. It is crucial that your partner can not only respond to your needs with attentiveness but understand them enough to anticipate and consult with no disruption to daily operations. A high-end market data provider will scrutinize the business challenges their clients face and can help them implement flexible data and technology that enables them to benefit from the change.
Finding this sort of high-end market data provider to secure and distribute this data for your company can often be a daunting challenge. Business needs change, so the right partner must act as an extension of your own operation and have a clear and accountable role that reflects your strategic goals and plans to expand into new markets and geographies. They should fully understand your business case and strive for new solutions, for example, to become more agile or productive.
It is important that they align themselves with your unique needs and be able to tailor solutions that build competitive advantages. An agile response is critical so the right solution must be scalable both vertically and horizontally. A market data provider should offer ready access to the best practice approach developed at the heart of the industry.
Financial data requirements change frequently. However, there are some consistent criteria that are critical to your success. By choosing a market data provider that meets all of these requirements, you’ll be assured not just success, but sustained success.
Accuracy and Latency
The number one criterion with usable data in any arena is accuracy. Ensuring the accuracy of the data you’re receiving is the first item on the market data provider checklist. This means that the data that is being delivered to your business is coming from known, reputable exchanges, with as little delay as possible.
Close proximity to exchanges is a distinct advantage, but a technology partner could also be directly connected to the Secure Financial Infrastructure network (SFTI) to offer a single, resilient connection for multi-market access. Most data/technology partners now publish processing benchmarks. Market-leading platforms can process up to 4 million messages per second for over a million instruments with sub-millisecond platform latency on a mid-range commodity server. They also have the ability to handle microbursts.
For example, one provider receives data from Chicago but does normalization and consolidation in a New York-based data center. So, the clients who think that they are getting the lowest latency in Chicago are mistaken because the data will go for processing in New York and then make its way back to Chicago, thus adding the roundtrip latency compared to a different provider which receives and performs normalization and consolidation in the closest datacenter to the exchange.
A provider should have the ability to handle microbursts, which are extremely important because of their impact on data consistency. E.g. huge burst of data happens in the opening minutes, when trading starts, reaching millions of messages per second. During this very first minute of opening among this enormous volume of data, there are some quotes coming for rare ticking instruments (once per day/week), and it is extremely important not to miss those ticks since another tick can happen in a week or more. The ability to handle bursts properly and the process by which data is normalized and consolidated are extremely important for making data provision reliable, consistent, and at the same time fast.
The coverage offered by a market data vendor must be closely aligned to your business plan for future expansion. Although this may seem obvious, it is often overlooked and, with the rapid pace of change, data acquisition can lag behind business requirements, which impairs business agility and responsiveness. A market data vendor should be aware of your business plan for the future and be able to provide coverage for a long period of time.
All market data, including equities, options, and derivatives, collected from different sources must be collated, normalized, and transformed into a single optimized format. Expertise in mathematics, knowledge of optimization algorithms how to process millions of messages per second from multicast and send it via a reliable TCP connection to clients, be able to handle bursts on session opening/closure, manage complicated recovery mechanisms, to provide end customers with the most actual/relevant market data even using low bandwidth channels. In practice, this is much more than an aggregation exercise and requires specialist expertise, technology, and commitment.
Data is only valuable if it gets where it is supposed to go. A flexible set of APIs is essential to ensure that existing and new platforms operate in harmony using the same market data. Support for Java and C/C++ have become essential requirements, but standards are evolving quickly. Most brokers are unlikely to have sufficient expertise in-house to manage substantial integration projects. A diverse set of APIs reduces dependency on a single supplier and improves flexibility.
Most brokers do not wish to manage a complex infrastructure onsite. Many innovative technology partners are harnessing the potential of cloud technology to minimize or even obviate the need for clients to maintain a complicated and costly infrastructure. This saves on increased costs in a number of ways: on support, upgrades, maintenance, taxes, additional employees, buying another server off the cloud can take months in some companies to get through all approvals, security, and so on. On cloud-based servers, new hardware can be added in a fraction of a second.
Extensive Product Portfolio
You need to be able to meet the diverse data needs of different users within the brokerage. Data is increasingly consumed by a growing number of departments for an expanding array of tasks that include compliance and regulatory reporting, such as MiFID II/MiFIR. Broker requirements are likely to include real-time, delayed, historical market data; basic or enhanced reference data; charting; Historical tick data services; calculated data services; live alerts.
Having an extensive portfolio means that this provider is a one-stop-shop for Market Data and Data related services. Due to the very specific arena of exchanges market data – the best expertise to create the data services is within the market data vendor.
It is a rare provider that can offer a wide range of services out-of-box, and at the same time be able to meet custom requirements and provide professional services to tailor the solution for the specific customer’s use case. They should be able to offer Value Added Services like Greeks, Theo Prices, Implied Volatility feeds for option pricing, historical data services (charting, order book aggregation, tick level historical data). And provide features like a Time-Machine for market data – to be able to dive into any historical date (e.g. when the flash crash happened) for any symbol, and being able to replay and see the data as if in real-time to learn about prices behavior surrounding this event, and back-test the strategies.
Flexible Data Package
Subscription-based charging helps align costs with business success and avoids the management of superfluous instruments. The ideal solution scales from a basic, low-cost platform that can be expanded quickly to accommodate a large number of feeds and very high message volumes. A data feed must offer scalability, so you can grow from a small trading firm to a big institutional brokerage house without changing systems.
A data partner must provide market data but also the entire set of services a client needs to read and analyze market data. For example, the broker should be able to implement charting on demand, alerting, market scanning, or market replay technology, and professional visualization platforms (heatmaps, Zooming or Delve UI, VR, or AR). New services must be added without interrupting day-to-day business operations.
The pace of change in world markets is fast. With the right partner, you are ready to adopt trending technologies and benefit from a range of new, attractive services, such as cluster analysis, holographic UI, and deep learning. An active technical partner is also an adviser and ‘custom tailor’ who can augment a rich product portfolio with additional features that add value and build a competitive advantage.
New hardware and new technology stacks open the door to completely different ways for market data to be processed, delivered, and visualized. Adopting new cutting-edge techs like VR/AR/deep learning/AI to provide clients with services that provide people working with financial/market data to perform more efficiently while making the gathering of data more convenient and friendly.
An active technical partner is also an adviser and ‘custom tailor’ who can augment a rich product portfolio with additional features that add value and build a competitive advantage.
The E-Forex Market runs on data; it is the life-blood. If your market data isn’t able to meet the requirements that have been laid out, it’s time for a transfusion.
Was prepared by Conor O’Driscoll (VP of OTC Platform at Devexperts) for e-Forex.