Financial services firms are under heavy pressure to ensure they have appropriate infrastructures to handle rising market data volumes, says a report by research firm Datamonitor.
The report, titled The Growing Significance of Market Data within Financial Markets, points out that when Reg NMS and MiFID come into force in October and November this year, even more data will need to be processed to be compliant.
Amit Shah, financial services technology analyst with Datamonitor and author of the study, says market data has always played an important role in the capital and financial markets, but that MiFID and Reg NMS will put immense pressure on companies to achieve accuracy and transparency. “This has raised the significance of market data and therefore brought this issue back on the strategic agenda,” he says.
The report reveals that market data volumes in the financial services industry are doubling annually, and estimates that spending by US and European buy-side firms on front-office market data infrastructure is set to reach $484 million by 2009. For sell side firms, it says, this spend will peak even higher at $1.9 billion.
The upcoming increase in market data is likely to have profound effects on market data infrastructures, the report says. One effect is the need for storage and another is ensuring the firm in question has relevant analytics in place to deal with the anticipated increase in volumes. The report points out that forthcoming regulations state that firms need to store data for five years. Datamonitor believes that with annual storage doubling year on year, pressure on the systems to accommodate the data will be immense.
Data quality as well as quantity needs to be taken into account, the report contends. It says data quality is sometimes overlooked in firms’ quest for low latency. But as low latency solutions become increasingly commoditised, Datamonitor believes firms will have to find new and innovative ways to mine data to stay ahead of the competition.
Ultimately, the firm says, the quality of data could become more important than the speed of data. It adds that to ensure data quality, financial firms will need to have consistent market data, reference data and analytics linked to applications throughout the trading cycle.
Market data is also playing an important role in today’s algorithmic trading techniques. The report points out that market data is embedded in every aspect of the trade decision process, from pre-trade through to post-trade analysis.
“As automated trading becomes increasingly cross-asset, so too must storage and analytic platforms to support cross-asset, next-generation trading,” says Shah. “Although some within the industry would argue this is straightforward, it is a complex process to provide these high performance tools and meet the challenges of integrating the data.”