Reduce Market Data Costs by up to 25%
Market data is essential for physical commodity markets. Traders, brokers, transporters, financiers and consumers rely on this essential information to negotiate, transact, bill and account various activities, but this comes at huge expense to them.
It’s easy to blame market data vendors, publishers and exchanges, for high fees, but firms eventually have to realise if they want to reduce their data spend, they have to work with industry experts like Phycomex to help optimise, negotiate and manage their market data spend.
Increasingly complex selling strategies from market data providers and new regulations such as Basel II make the need for controlling market data greater than ever before. This has resulted in a surge in data audits/ reviews from data providers making sure they get paid what they feel they are entitled to.
The cost of data is typically based not only on specific feeds or data sets, but also the number of users who access the data and how and where the data is being used, through which systems, outputs/ delivery methods etc. Firms that break the terms of their contracts, even accidentally, can face hefty penalties and in some cases fines of up to $20Million for such negligence. Naturally, organisations complain they are being ruthlessly squeezed, overcharged in particular, by those monopolistic data providers showing up with surprise audits at every renewal, resulting in higher costs. Unfortunately they are a lot better at finding such breaches than organisation are at figuring out where they are being overcharged.
Phycomex helps companies figure out where they are being overcharged and how to handle excessive licensing arguments.
Portugal’s investor advocacy group Associacao de Investidores (Association of Investors) refers to this as a “history of immoral fees” and wants the European Commission to ensure that the second version of the Markets in Financial Instruments Directive (MiFID) won’t allow European exchanges to make too much money. A copy of this campaign can be found at the Stop Market Data Fees website.
Because there is no single definition of market data or a standardised pricing model, it is difficult to estimate with any certainty just how much cost-cutting firms can do. Some data providers define market data as the price of an instrument or group of instruments, while others incorporate counterparties, reference data, volumes, indices, foreign exchange rates, and benchmarks. When it comes to discussing the price, some only include the basic licensing fees for data feeds, while others add the costs of terminals, delivery, maintenance and other connecting applications. Often, beyond this there are also the “hidden” costs that somehow manage surface every renewal. Regardless of how it is defined, market data is in the top five operating expenses for financial and trading firms. Research indicates that financial firms typically spend anywhere from about US$1 million a year to as much as US$25 million a year in licensing fees alone. For commodity traders, the figure could be exponentially higher.
Managing market data costs can be challenging depending on the number of data contracts, the number of users, systems as well as the resources a firm may spend on controlling those costs. It’s even worse when mergers or acquisitions of business lines are involved adding ever increasing fees on top of what is already a huge cost and admin burden.
The good news is, with the right knowledge and expertise on side it’s possible to save anywhere from five percent to over twenty five percent on market data/ licensing fees. Many of the largest banks and trading firms already have experience in keeping tabs on their market data with technology tools, dedicated staff and, when needed, information consultants like Phycomex. Many tier-one banks and Oil Majors confirm that their organisations conduct periodic internal audits and rely on data management tools as well as market data management gurus like Phycomex to keep a check on unnecessary usage and avoid the “hidden” costs.
At a bare minimum, Phycomex will help you identify where you may be overcharged and the steps to take to reduce costs, which individuals really need the data and where it may not be essential. Our tools help map the licensed data flow within an organisation and externally, assisting in optimising internal needs, but also to satisfy market data provider’s licensing terms. Getting a handle on licensing fees is just one part of the overall cost cutting scheme. In addition to this, it’s critical to have ongoing controls in place to manage and monitor usage as companies and individual needs are ever changing, leaving this opens the doors to surprise audits and associated costs. Phycomex can help firms assess the terms of their licensing contracts with invoices verses the actual usage of the data. Produce estimates of what future invoice may be and in particular, the steps to take to reduce costs further without compromising the terms of any data providers.
Optimising internal usage requires huge scrutiny of an organisation and its internal workflows, systems, models etc. Phycomex works with centralised market data teams by providing transparency on everything to help make informed decisions on procurement. Often tough decisions need to be made such as who gets which data sets and who doesn’t. For smaller organisations Phycomex acts as the central procurement team for its clients.
Firms need to start by adding up the personnel costs related to ensuring data accuracy and consistency either on a full-time or part-time basis, costs related to terminals, systems, data, storage, internal data distribution or API’ s etc. Then decide what tasks can be optimised/consolidated, terminals eliminated or replaced with lower cost solutions, data warehouses consolidated or cheaper equally effective technology used. In short, there’s a lot to do, contact us now to get started.