Financial Industry Authorities Are Taking Action To Regulate The Rising Cost Of Market Data
This article provides an insight into how regulatory authorities are looking to tackle rising market data costs. We look at their plans, how it is reflected by industry trends, with examples from leading industry participants and the effects on the financial industry in the next decade. The article also covers both sides of the argument surrounding cloud migration and how CJC can help firms achieve their objectives.
Market data is a highly contentious topic in the financial services sector, frequented by arguments over access costs and data ownership. The ongoing disputes have caught the attention of regulatory bodies in multiple countries, igniting various attempts at resolving the issues. Most recently, the US Security and Exchange Commission’s (SEC) introduced the Market Data Infrastructure (MDI) rule and approved the subsequent CT plan submitted by US self-regulatory organisations (SROs). Following SEC’s lead, Brussels is also reportedly planning to create a centralised database of publicly listed companies and trading activity information to enhance the integration of EU capital markets.
The UK’s Financial Conduct Authority (FCA) have yet to announce similar plans but, have launched a review into market data pricing in 2020 and the availability of data last month.
THE KEY POINT
Both SEC and the EU are seeking to resolve one of the longest-running disputes in the industry through the deployment of modernized market data infrastructure. The approach resoundingly echoes the current industry trend where firms are increasingly adopting cloud-based infrastructure to centralise, modernize, and deliver the optimal experience to a growing digital-first customer base. An industry trend the FCA acknowledged and is subsequently introducing regulations, which will require banks to scrutinise their cloud service providers more closely from 31 March 2022.
WHY CLOUD-BASED INFRASTRUCTURE?
Given the attention to cloud-based infrastructure, many have asked why cloud? Aside from the benefits explained in a previous post, one of the reasons underpinning the growing acceptance of cloud adoption is the economics of building large-scale shared platforms internally compared with the significant investments already made by large cloud service providers like the Google Cloud Platform (GCP), Amazon’s Web Service (AWS) and Microsoft’s Azure platform. Secondly, firms cannot compete with the continuing level of investments made by cloud providers.
To demonstrate the practical benefits of cloud migration, Goldman Sachs is opening up access to its financial data resources and analytics to third party institutions via its AWS Data Exchange initiative. The new GS Financial Cloud for Data service assists investment clients to discover, organise and analyse data within the cloud, which enables their developers to focus on trades instead of working through complicated data sets to build proprietary quantitative applications.
WHY NOT CLOUD-BASED INFRASTRUCTURE?
Most firms have realised the capability benefits of modernizing their infrastructure. However, the cost of replacing legacy databases and infrastructure with cloud-based architecture remains a stumbling block. Nevertheless, firms are beginning to understand that baulking at the cost to modernize is not an option if they want to be competitive - especially when industry cloud usage is due to expand further.
Despite the unappealing initial costs, financial firms are beginning to understand that cloud-based infrastructure can be a catalyst for innovation, agility and efficiency. The benefits of a modern cloud-based infrastructure can support competitive advantages, reduce time to market for new products and address issues of scale concerning the total cost of ownership for IT infrastructure.
Entities like banks or exchanges with large and complex IT infrastructure demonstrate the last point well. By understanding the strategic importance of adopting and migrating to the cloud, recent migrations include NASDAQ, which partnered with AWS to build cloud-enabled capital markets infrastructure and ASB, which will shift its banking applications to Azure.
THE NEXT DECADE OF THE FINANCIAL INDUSTRY
Whilst more advanced technology is increasingly accepted and integrated to enhance infrastructure performance, there is a belief that ‘BigTech companies will be the dominant force on Wall Street a decade from now.’ A prediction not without basis, considering Google's massive $1 billion investment into the CME Group and a separate 10-year partnership to migrate the derivative exchange's infrastructure onto the GCP cloud platform.
Circling back to the issue of rising market data costs, the CME Group is among the latest to increase market data prices and introduce additional fee types to access their data.
MIGRATING AND MANAGING MARKET DATA IN THE CLOUD
Securely migrating market data into the cloud is no small feat, which we discussed back in August, but the subsequent efficiency improvements that foster innovation is indisputable. Unfortunately, cloud-based infrastructure cannot build and run itself autonomously without external support (yet) - this is where CJC can help.
CJC is a specialist market data IT consultancy that specialises in building, monitoring, managing and optimising market data infrastructure systems as a service. Our global team of specialist MDS engineers offer an SRE driven, 24/7 Operations-as-a-Service (OaaS) solution for critical market data distribution systems deployed on-premises, hybrid, or hosted in the cloud (GCP, AWS or Azure).
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