The Rise Of Market Data
A report issued by Thomson Reuters and Lepus recently contended that market data “contributed to the financial crisis” citing poor quality and more than one copy of the same information as the primary causes. Consider the uses of market data – alogrithms, analytics, settlements, risk management and trading. Someone who is engaged in high frequency trading is warehousing every tick of information in a database and feeding that data as fast as possible in to some money generating algorithm that sends thousands of orders per day. Imagine if that data is incorrect or corrupted what it would do to her trading profits. What of the risk manager who is monitoring both firm and client exposure with Monte Carlo simulations and VaR calculations only to discover that price inputs are erroneous. It could cost the firm and maybe his job despite the tools of risk management performing as they should.
Now more than ever has their been a need for consistent reliable market data throughout the investment ecosystem. Trading volumes globally have exploded driven by ever more sophisticated trading applications, the low latency arms race and availability of multi assets across many countries.
Since RegNMS and later MIFID spawned competition and mandated best execution rules has the push for higher levels of accurate and meaningful data been underway. It was not until firms began picking up the pieces left from the financial crisis and a critical assessment of how to avoid the same mistakes again was the notion that market data was a key element of the business.
Traditionally, market data came from several sources that tended to be siloed by asset class within the firm. All that has changed. The drive is to unify the source of data across the business having it cross referenced and verified allowing for informed assessment and accurate decision making across the departments that are data dependent. High quality market data will also facilitate the push to live time risk management, trading confirmations and clearing the financial industry is striving for.