How to Survive the Escalation of Market Data in Financial Services

February 12th, 2007 |
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Market data services in today’s global financial services institutions can prove to be an ever- escalating issue that can have a severe bottom-line impact. If market data services are not carefully planned for and service levels drop, it can cost a financial services firm dearly.

In this podcast, Farid Moussavi, managing director of BearingPoint Financial Services Technical Solutions Practice will help you to better understand a service delivery framework to address the prevalent issues in providing market data to your internal clients. He will also explore what it would take to treat market data like a service.

Transcript:

Host: Paul Lancour – PodTech

Guest: Farid Moussavi – BearingPoint

Paul Lancour – PodTech

I’m Paul Lancour with PodTech.net.

Farid Moussavi – BearingPoint

People are expecting in a very short-term and I mean the next 12-18 months, the volume of market data to quadruple.

Paul Lancour – PodTech

That’s Farid Moussavi, Managing Director of Financial Services Technical Solutions Practice at BearingPoint. Not only is the sheer volume of data a problem, but traditional practices of considering data in individual silos will no longer suffice. I started by asking Farid to give us his view of the landscape today.

Farid Moussavi – BearingPoint

I think the best way to give a good background to set things going here is to state it in the form of a problem, and then discuss about how to identify the solution or solutions around the problem. Market data in its original form dating back to its early days really was historically pretty nothing more than a ticker tape if you will, of information coming on a piece of paper, out of a box on to a user’s desk or office or an organization, and over the course of time, Financial Services history especially in the last decade or so, it’s really exponentially grown to be much more than that. It’s no longer just a push of information to individual or organization. It really needs to be treated like a technology service, just like other technology services in an IT organization is used to pushing out to whether it’s email service or network service or desktop services and the like. And in this context, what we’re advocating here is to really put together a service delivery framework as an IT organization and the financial services firm is looking to treat market data for service.

Now, there’re some challenges obviously, especially in the days of algorithmic trading and program trading, this really represents the secret sauce if you will, of some other financial services firms, and breaking down the barriers to the silos of what it takes to deliver Market Data Services to a User Community, it is really the daunting task that’s in front of most IT organizations as well as the business divisions that they represent and support. There are fundamentally, currently two models providing market data, one is the classic outsource model, Bloomberg is a primary example of a subscription based turn-key solution, and then the other model is one which is more of a cookie cutter, grow your own type model. Companies like Reuters and Thomson are usual suppliers in this domain that leverage on market data distribution platform.

Paul Lancour – PodTech

So, that’s a good outline of the problem as it exists right now that there’s a lot of market data out there, and there’s a lot of technology that is changing the way, people expect to have that data presented to them. What’s the trend going on right now with financial services firms using Market Data?

Farid Moussavi – BearingPoint

Well, the most daunting trend is just a sheer volume of market data coming out from the exchanges into various sources. The content is just exploding and the ability of the financial service firms to absorb this volume, and deal with it and basically make very quick financial decisions from the moment of making the decision to the execution of that decision is now being measured in microseconds whereas it used to be measured in minutes if not hours. So, with this explosion of data and just a sheer volume and the type of data what we’re looking at here is a problem statement whereby the technologists who have to consume this data or challenge with rising costs, being forced primarily in a reactionary mode, and it’s really a costing issue and most firms on Wall Street are now challenged with this trend.

Market Data, let’s not forget, is this annual spend in a large Wall Street firm is usually measured not in the millions or tens of millions, It’s measured in the hundreds of millions of dollars per year as their annual spend and this number is increasing.

Paul Lancour – PodTech

Given what you’ve said then what would it take to take to go from the old models to a newer model that would treat market data more like a service?

Farid Moussavi – BearingPoint

Well, we’re advocating a tiered service delivery approach whereby you’re really treating users based on their need for market data. So, if you take the analogy of a bronze, silver, gold typed User Community where the bronze user would be basically looking at just screen-based display of data, the silver and gold as now platinum user would be looking at data coming out in a much faster pace to address for example automated trading, algorithmic training, doing some of the really exotic cross-asset class trading applications, that is a totally different type of user and therefore must be treated as such.

In order to treat the User Community in such a structured fashion, you’re really looking at addressing three fundamental areas. One is Instrumentation and that’s simply the monitoring and reporting of connectivity with the market data service providers. Your internal market data feed handlers and cache, and looking at of course your data quality itself. Another area where it’s definitely needed to some assistance on is the area of Processes. If you’ll take a look at the service delivery framework then too it’s of course several processes that together form that framework. The most important one that applies here is one of Capacity Management, and we should not be a surprised because of course the sheer volumes are forcing capacity limitations to be violated. Looking at Capacity Management which involves enhanced collaboration with the exchange data providers, the application developers, production support, regulators as well as the end users themselves who will help the market data service organization stay ahead of the curve.

The last and definitely not the least, it’s not the most extensive is looking at addressing this tier to user community from an organizational support perspective. This is where you have development support for new API to support low latency infrastructures that the new volumes are dictating, as well as the integration with existing service delivery components to address the problem. What do I mean by that? IT organizations for these firms are all providing perfectly viable email service, network service, desktop services, and they all have what you would expect and to help desk, trouble ticketing, problem change inside of management, that’s all embedded into the way they do things everyday. There’s absolutely no reason why market data cannot be treated just like any of these other service families, leveraging the exact same service management concepts that are dictated by a service delivery framework. Hopefully, that shed some light on how one would go about embarking on a tiered user community.

Paul Lancour – PodTech

I think it does, but also I would wonder what are some additional challenges? You’ve already outlined some in terms of expected speed by the client, the sheer amount of data. What are some of the challenges in breaking down these silos?

Farid Moussavi – BearingPoint

A couple of things, one comes to mind is primarily is — market data falls in that classic business and technology divide. On one hand, you’ll have as I have mentioned earlier in the introduction, the secret sauce, the applications which consume market data information are really in many ways swinging the profitability of the firm could very easily go from the positive to negative and vice versa. An outage of market data during the business day even measured in a matter of few minutes can translate into tens of millions of dollars of lost revenue. So, letting go or opening up access to these applications and see where some of the skeletons are, where some of the errors of optimization could be opening up some other proprietary protocols. These are the types of things that are much higher hurdles in the context of market data than in other technology solutions. It’s an (Inaudible) of email which is basically a utility type application whereas market data applications or anything, but you also have sheer lack of knowledge unfortunately in the technology community as well as in the business community about what market data is from a life-cycle perspective. There’re so many disciplines that are involved in pushing this out as a service. Market data is the industry is somewhat of an incestuous industry. Very few people in the industry are aware about the issues. A lot of people can speak to them, but actually addressing them, you can really — it’s hard to find their talent that can speak to it and work at it the same time.

Paul Lancour – PodTech

Well, given all the difficulties you’ve outlined what is the reasoning behind doing this in the first place?

Farid Moussavi – BearingPoint

Well, as I mentioned it represents hundreds of millions dollars of annual spend that usually is one of the largest, it’s not The largest line item and IT organizations budge in the financial services firm. And by definition there’s opportunity to save but not only capital cost but operational cost. So, cost optimization, cost efficiency is definitely one aspect of it. Secondly, everybody is expecting not just the slope to continue going up linearly but exponentially with the advent of some of the regulations that are coming on board, people are expecting in a very short-term and I mean in the next 12-18 months the volume of market data to quadruple. So, this is if they don’t spend money on it now to address the issues that they’re facing, but now they’re only going to be spending that much more money later. So cost avoidance, optimization and frankly, user satisfaction getting that very precious piece of information to that trading desk in the right to point of time is going to be the difference between profit or loss at the end of the trading day.

Paul Lancour – PodTech

So, what is the vendor community doing to address this problem?

Farid Moussavi – BearingPoint

Well, depending on which sub-section of the community you’re talking about. At the end of day you’re talking about CPUs, you’re talking about servers, you’re talking about networks. If you’re a CPU vendor you want to sell more servers, you want to be able to ultimately ideally, horizontally scale but that’s not going to solve the problem that’s actually going to — it’s anything add to the problem, you want to ultimately, vertically scale and looking at some of the latest technologies when it comes to, for example, Dual-Core technology or testing Quad-Core technologies, exploring server fabrics, these are the types of things that the hardware vendors are addressing and most of these firms are maxed out on their data centers. There is no space left, there is no power left to add more servers, so something more innovative has to be done to address the hardware on footprint.

On the network side, of course the usual suspects in the networking community are providing the monitoring tools or just beginning, I should say, you would think that they would be well on their way given the size of dollars that are being spent but they’re providing monitoring tools to be able to measure latency which is a very big issue at the moment in a the market data space, and the service providers themselves, the market data service providers, the Bloombergs, the Reuters, the Thomsons, they are recognizing that this is becoming a barrier that’s too high for even them to address on their own. So, they’re developing various user groups to work along with their clients to address some of the service delivery aspects of market data.

Paul Lancour – PodTech

Who do you see out there in the market place who is at the cutting edge addressing this?

Farid Moussavi – BearingPoint

Well, without necessarily plugging any one vendor, I think as I mentioned depending on which angle you’re addressing this problem, you have your service management vendors which were obviously very keen on because that’s the foundation of what we are talking about here, providing more open sourced solution based approaches to service delivery whether it’s a reporting tool, whether it’s a trouble ticketing tool, whether it’s a monitoring tool, they are all beginning to wake up and pretty much trying to address this problem, of course admitting that there is a talent shortage in the space. In the network space the hardware vendors the likes of Cisco, for example, but definitely not just them are also being able to put in some monitoring capabilities to their underlying switches and routers to be able to accommodate at this very specialized type of traffic in the monitoring and in reporting.

Paul Lancour – PodTech

Is there anything else, Farid, you would like to share with our audience?

Farid Moussavi – BearingPoint

Well, to those in the audience who’re involved in providing market data to an end user community, I would like to say is help is on the way because the vendors are be a little bit late to the scene are beginning to wake up, I think there really is no real silver bullet, there is no automated solution that’s out there that you can just buy off-the-shelf I think. People are going to have to continue rolling up their sleeves for those of the audience who have experienced a shrinking of their budget when it comes to this particular technology domain, they will see a reversal of that, they will have to see a reversal that is their firm is going to continue being a player in the capital market space.

Paul Lancour – PodTech

Well, with that I want to thank you very much for taking the time out to speak with us today, Farid.

Farid Moussavi – BearingPoint

Oh, you’re quite welcome.

Paul Lancour – PodTech

Farid Moussavi is the Managing Director of Financial Services Technical Solutions Practice at BearingPoint.

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