The right strategy makes market data more efficient

It provides crucial information for trading and treasury operations, compliance and risk management, and for reporting and annual financial statement processes. 

The essential market data include price information such as stock prices for equities, derivatives and commodities, exchange rates or interest rates, which reach the end user of this information in real time, with a time delay or on demand. From a technical perspective, a distinction is also made between streaming data, snapshots and time series. Reference data, such as company key figures, ratings and securities master data, is also very important. 

While market data is of immense strategic importance, companies often face challenges and problems when handling it. This is due, on the one hand, to the growing demand for data and the high cost of data, and, on the other hand, to new regulatory requirements, complex license models and a lack of transparency regarding the use of the data.

When defining a market data strategy, the aim is to strike the right balance between cost efficiency and compliance.

There are several reasons why the demand for market data has increased in recent years:

• Increasing regulation: As new regulations, such as MiFID II or Basel III, often lead to additional reporting requirements, which in turn often require new data solutions, companies need to collect and use more detailed and accurate market data to meet compliance requirements.
• Process Optimization: Automation of trading processes and the spread of algorithmic trading 
• Data analysis: The availability and use of big data and advanced analytics tools has led companies to collect more market data for better decision-making and a competitive edge.
• Advanced analytics: historical market data is increasingly used for analysis and simulations, often with the help of machine learning.

Not many companies know the details of how the costs for their individual market data solution are composed. That said, there are several starting points to optimize. 

• Scope of data usage: Where companies have a less than ideal set-up for their market data usage processes, consumption is often far higher than it needs to be.
• Monitoring the distribution of data within the group: Usually, once the data has arrived and been processed in the company, it is often shared with other systems or made accessible to a large number of users Doing so often results in compliance risks and, as a consequence, high contractual penalties, which the data providers can demand.  
• Selecting the appropriate data products: The products must be suited to the intended use. It is possible to map the same use case with different data products, but the conditions can differ considerably. 

Consider the following parameters when selecting data products:

• Topicality: Real-time vs. delayed, with delays ranging from a few seconds to several days
• Volume:
  • Provision of historical data compared to the type of market data requested (currencies, IR curves, etc.)
  • Additional analytical services
  • Additional services for regulatory and compliance reporting
• Distribution:
  • Number of views, users, required licenses
  • Usage rights/distribution rights internal/external
  • Creation of own products/benchmarks, derived data
  • Geographic coverage
•  Infrastructure:
  • Basic subscription fees
  • Number of terminals, cloud usage, distribution systems
  • Degree of customization and integration into the treasury management system

The market for market data products is dominated by a few major providers, many of which also provide the technical infrastructure in addition to raw data. Other players, such as stock exchanges, rating agencies and specialized data providers, cannot match the breadth and functionality of these major players, however. They are usually not an alternative for companies with a high need for market data. 

The large providers dictate the pricing and develop complex licensing models that restrict companies' flexibility and can result in high additional costs. Besides choosing the right data sources, many companies also need to negotiate cost-efficient contract models, especially internationally.

In recent years, all providers have significantly raised their prices and made many license-free use cases subject to a fee, which confronts companies with compliance issues and expensive relicensing. This shows the need for professional market data management to optimally control data acquisition and limit cost increases.

For many large companies, it is difficult to get an overview of which market data sources are used where and how. Monitoring is particularly difficult in companies with complex system landscapes where data is passed from one system to another. The result is that companies are underlicensed in some areas and face high compliance risks, while in others they pay more than they need to.

In many cases, companies are unable to adapt their data strategy quickly enough to changed business processes or corporate structures. This leads to inefficient structures and unnecessary additional costs. On top of this, the amount of data stored and used is continuously increasing as new reporting obligations and regulatory requirements intensify the need for precise documentation. 

Market data is not only expensive, but also complex to manage. It is used in various departments, requiring close coordination between business, IT and market data managers. 

Even when it comes to responsibility, the industry sees a wide range of approaches. Seldom is there a market data manager who not only is familiar with the internal processes to determine the demand, but also has an overview of the supplier market, is adept at minimizing cost increases and understands the system landscape to optimize data integration and distribution.

It is only logical then to ask how to gain control over the challenges mentioned. The answer is to set up a structured market data strategy and governance.

Core elements of successful governance include:

• A clear definition of goals, processes and responsibilities must be set out in a strategy for efficiently procuring, using and distributing data.
• Interim market data management, if necessary, to bridge short-term gaps and to support a strategic realignment.
• Improved control of data usage to realize long-term savings potential and ensure needs-based usage.

An overarching strategy ensures efficient use of market data. By carefully managing data usage, long-term savings can be realized while data is used as needed. At the same time, market data management must be set up in such a way that market data needs are reliably covered in the long term.

Optimizing the market data supply requires a systematic approach that combines various business, technical and commercial measures. Targeted cost reduction projects can help companies achieve significant savings.

An effective project approach to cost reduction can be structured as follows:

1. Business angle: analyzing the processes for acquiring, storing, using and distributing data in order to identify optimization opportunities.
2. Technical angle: optimizing the technical infrastructure to streamline interfaces by harmonizing processes and systems, thus reducing data consumption.
3. Commercial angle: reviewing contracts and renegotiating with providers to identify optimized licensing models and achieve long-term cost reductions.

All three sets of measures can be implemented in parallel. 

Doing so consistently will quickly pay off the project costs, as savings can often be realized in the short term. An initial analysis quickly identifies optimization potential that can be realized to varying degrees.

Having a structured concept for market data supply ensures that data is selected specifically, used transparently and implemented in accordance with the rules. Selecting the data products depends on the specific business requirements. Maintaining transparency regarding origin, use and costs avoids unnecessary expenses and enables efficient use. Complying with license agreements minimizes compliance risks.

Alongside short-term optimizations, it is crucial to have a long-term strategy to ensure a sustainable and cost-efficient market data supply. This includes regularly reviewing costs and continuously adapting the data strategy. Being flexible in how you obtain data helps to avoid becoming dependent on individual providers, while also strengthening your negotiating position to achieve better contractual conditions. Transparency regarding data costs and use helps to reduce unnecessary spending. Clearly defined roles and processes enable efficient control and management of the data strategy. Also, adherence to license terms ensures that compliance risks are minimized. 

All in all, a well-thought-out and structured approach to market data provision not only provides companies with short-term savings, but also paves the way for long-term efficient and compliant use of market data.

Source: KPMG Corporate Treasury News, Edition 151, January/February 2025
Authors:
Börries Többens, Partner, Finance and Treasury Management, Corporate Treasury Advisory, KPMG AG
Hans-Jörg Behrens-Ramberg, Senior Manager, Finance and Treasury Management, Corporate Treasury Advisory, KPMG AG
Dr. Alexander Patrakov, Director, Financial Services, KPMG AG
Andrey Shevchuk, Director, Financial Services, KPMG AG