Buy-side market data costs on the rise as asset managers tap fixed income, equities, and ETFs for the greatest spend

According to Coalition Greenwich and SIX's latest report, 80% of buy-side firms surveyed expect spending to go up across the board for market data in the next year.

Asset managers have tapped fixed income, equities and exchange traded funds (ETFs) for their greatest market data spend over the next 12 months, according to a new Coalition Greenwich and SIX report published on 22 August.

Buy-side asset managers said they expected fixed income market data spend to go up by 13% in the next year, followed by 10% for equities and 10% for ETFs.

The fixed income markets in particular have undergone a transformation in recent years, going from highly manual to increasingly electronic via MTFs and direct connectivity. This has increased the amount of data needed for participants to execute.

“Trading venues, which hold some of the richest data sets, are only now starting to commercialise those products with their end customers,” Coalition’s report said.

“While the market may not like the price of these data products, the increase in quality and usability will get them over the mental barrier that has limited some spending thus far.”

While asset managers only predicted spend on alternative data sets to go up by 3% in the next 12 months, 44% of institutional asset managers and hedge funds surveyed by Coalition Greenwich said they use it as part of their portfolio construction process.

Use cases for real time data vary across the board, however most firms use it within trade execution and trading operations. Due to prolific high frequency and latency sensitive activity in the US and UK equities markets, they are more dependent on real time data than others. Overall, 72% of those surveyed by Coalition Greenwich said they used real time data throughout the course of the day.

When it comes to market data vendor selection, Coalition Greenwich’s report found that this varies depending on the type of institution. Sell-side firms are usually organised via region and buy-side firms more by business unit. Asian markets have a more global focus regarding market data decisions, whilst European participants prefer regional market data decision making.

“When European buy-side firms make decisions globally, our data shows that Europe has greater influence than the US, perhaps reflecting localised preferences for data providers with strong European market structure expertise,” said the report.

The cost of market data has been central to much debate in both the UK, Europe and the US in recent years as many industry participants claim it is the cost of it is too high and is controlled by too few.

Regulators globally have subsequently begun to look into the market for data. In March, the UK’s Financial Conduct Authority (FCA) concluded that some data markets are concentrated on too few firms, limiting choice for institutions and making switching suppliers difficult. 

It also found that the process of procuring data – in particular the way it is sold – is too complex, again having the effect of limiting choices for investors when sourcing this essential data.

Data accuracy was listed as a top driver for participants wanting to switch market data providers with 65% of those surveyed saying it was a very big driver. Only 33% of those surveyed claimed cost was a very big driver that would drive them to switch.

Coalition Greenwich, in partnership with SIX, interviewed a total of 79 global buy-side and sell-side market participants for this study.

The study follows a similar survey by Coalition Greenwich and SIX in June that found that data quality was more important than cost. Also in their June survey, 64% of respondents agreed that in the next three to five years the cloud will become the dominant market data delivery method.