The TRADE predictions series 2023: Data, part one

Participants from Legal & General Investment management, BMLL Technologies, Substantive Research, and Adaptive Financial Consulting explore data trends for 2023.

By Editors

Ed Wicks, global head of trading, Legal & General Investment Management: A lot of the focus for asset managers next year will be around data. The macro-economic environment remains uncertain, with inflation and interest rates predicted to continue significantly impacting global markets next year. This challenging backdrop could encourage investment firms to further leverage data to help drive both effectiveness and efficiency. From a counterparty management perspective, increased use of data can enhance interactions, providing value for both the buy- and the sell-side.

Ensuring consistent and high-level access to liquidity is always a priority, but in challenging markets when balance sheet can become scarcer, counterparty relationships are key.  Another way data may be further harnessed by asset managers next year is around the execution process. When market conditions are tough, increased use of data can further drive performance, giving traders greater insights before they access the market. This can help the buy-side to continually and efficiently calibrate counterparty panels, at a very granular instrument level. Also, particularly in fixed income markets, real-time access to reliable data sets can help traders evaluate the right execution protocol for a given order.

Mike Carrodus, CEO, Substantive Research: In 2023, tipping points will be hit across investment research and data. The recently announced Bernstein/SG deal indicates the direction of travel in research, where even premium research products and services become part of wider platforms with multiple revenue streams. Mifid II arguably removed a great deal of “nice to have” research from the market, but the danger now is the loss of quality and differentiated inputs at greater pace.

If providers choose to survive by being acquired, then research consumers need to understand what this M&A means for quality and independence. In market data we will see the opposite situation – continued cost inflation at a provider and product level, and a group of consuming firms struggling to control budgets and understand how their agreements compare to the wider market. The FCA’s Wholesale Market Data Study will finish by the end of the year, with the accompanying focus on the competitive landscape and the opacity of pricing and licensing models. Buy- and sell-side firms will also take it upon themselves to understand their data consumption more holistically and make concerted efforts to encourage greater competition and transparency wherever possible, regardless of how the regulatory situation plays out.

Matt Barrett, CEO at Adaptive Financial Consulting: Firstly, there will be increased investment in technology across financial services and capital markets participants. In response to the opportunities created by the big tech firms stumbles, depressed valuations, and lay-offs, the use of technology to differentiate will be back as a board room topic in 2023. Secondly, cloud resilience will be high on the agenda. With financial institutions accelerating cloud adoption, rapidly moving their core infrastructure onto the cloud to save cost, enhance their ability to scale and improve access to data insights and analytics, an issue that will become increasingly top-of-mind is vulnerability to outages. As firms rely on cloud services, faults or drops in service can have a critical impact on businesses and traders that use them. Cloud resilience and high availability will therefore become a crucial topic – sophisticated trading firms need the assurance that their operations will remain consistent 24/7. Firms realise they cannot be beholden to third party outages – fault tolerant architecture and technologies will therefore become an increasingly central consideration for firms looking to build their own trading technology stack to differentiate.  

Paul Humphrey, CEO, BMLL Technologies: The race for high-quality historical data will step up in 2023 as firms look for deeper insight across the trade lifecycle. Now firms must capture the power of granular historical data to gain an edge and are more aware of what capabilities they need to implement at every stage to achieve this. Quant teams are using third party data science platforms as the foundation upon which to build research. Traders are demanding analytics that contextualise real-time activity against historical averages. Sophisticated firms are combining public and private cloud to maximise the benefit of high-quality data within their own environments at a fraction of the cost of running complex market data pipelines themselves.

All of this is predicated on high-quality data from firms who specialise in historical data, not simply as a by-product of their real-time business but built using dedicated Level 3 engineering processes as the core value proposition they bring to the market. Demand for market data derived from the most granular data available will only grow as the need for competitive edge, and correlating sophistication levels, rise. Firms that realise the predictive power of Level 3 data will understand their markets better, derive more predictive analytics, and leave those still using lower-quality data behind.