Use market data more efficiently with the right strategy

They provide crucial information for trading transactions, treasury operations, compliance and Risk management as well as reporting and annual financial statement processes.

Essential market data products include price information such as stock market prices for equities, derivatives and commodities, currency rates or interest rates, which reach the end user of this information in real time, with a time delay or on demand. A technical distinction is also made between streaming data, snapshots and time series. Reference data such as company key figures, ratings and securities master data are also of great importance.

Despite their high strategic importance, companies are often confronted with challenges and problems when dealing with market data. These include, on the one hand, the increasing demand for data and the high cost of data and, on the other, new regulatory requirements, complex licence models and a lack of transparency regarding the use of data.

The aim of defining a market data strategy is to ensure an optimal balance between cost efficiency and compliance.

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

• Increasing regulation: New legal requirements often lead to additional reporting obligations, for which new data solutions are often used, such as MiFID II or Basel III, companies must collect and use more detailed and accurate market data in order to fulfil compliance requirements.
• Process optimisation: Automation of trading processes and the spread of algo-trading
• Data analytics: the availability and utilisation of big data and advanced analytics tools has driven companies to collect more market data to make more informed decisions and increase their competitiveness.
• Extended analysis options: historical market data is increasingly being used for analyses and simulations, partly with the help of machine learning.

Many companies do not know in detail how the costs for their individual market data solution are made up. There are several starting points for optimisation.

• Scope of data utilisation: If companies' processes relating to the use of market data are organised suboptimally, then consumption is often significantly higher than it should be.
• Control over the distribution of data within the group: Once the data has been received and processed within the group, it is often passed on to other systems or made accessible to a large number of users. This practice often leads to compliance risks and, as a result, to high contractual penalties that data providers can demand.  
• Choosing the right data products: The products must be suitable for the intended use. The same use case can be mapped with different data products, but the conditions can differ considerably in some cases.

The following parameters must be taken into account when selecting the data products:

• Timeliness: real-time vs. time-delayed, whereby the delay can range from a few seconds to several days
• Volume
  • Provision of historical data vs. the required type of market data requested (currencies, IR curves, etc.)
  • Additional analytical services
  • Additional services for regulatory and compliance reporting
• Distribution
  • Number of accesses, users, licences required
  • Internal/external usage rights/distribution rights
  • Creation of own products/benchmarks, derived data
  • Geographical coverage
• Infrastructure
  • Basic subscription fees
  • Number of terminals, cloud usage, distribution systems
  • Degree of customisation and integration into the treasury management system

The market for market data products is dominated by a few dominant providers, who often provide the technical infrastructure as well as the raw data. However, other players such as stock exchanges, rating agencies and specialised data providers do not achieve the breadth and functionality of the big players. They are usually not an alternative for companies with high market data requirements.

The large providers determine the pricing and develop complex licence models that take away flexibility from companies and can result in high additional costs. Many companies not only have to choose the right data sources, but also negotiate cost-effective contract models, especially internationally.

In recent years, all providers have made their pricing models significantly more expensive and made many licence-free use cases chargeable, which confronts companies with compliance problems and expensive re-licensing. This shows the need for professional market data management in order to optimise data procurement and limit cost increases.

Many large companies have hardly any overview of which market data sources are used where and how. In companies with complex system landscapes, when data is passed from one system to another, control is particularly difficult. As a result, companies are under-licensed in one place and have high compliance risks, while in another place they pay more than they need to.

Companies often do not adapt their data strategy quickly enough to changing business processes or company structures. This leads to inefficient structures and unnecessary additional costs. At the same time, the amount of data stored and utilised is constantly increasing, as new reporting obligations and regulatory requirements reinforce the need for precise documentation.

Market data is not only expensive, but also complex to manage. It is used in different departments, which requires close coordination between specialist departments, IT and market data managers.

There is also a wide variety of approaches to responsibility in the industry. It is rare to find a market data manager who is familiar with internal processes in order to determine requirements, who has an overview of the provider market in order to avoid cost increases and who understands the system landscape in order to optimise the integration and distribution of data.

Consequently, the question arises as to how control can be gained over the aforementioned challenges. The answer is to establish a structured market data strategy and governance.

The key points of successful governance include

• The clear definition of objectives, processes and responsibilities for the efficient procurement, utilisation and distribution of data must be set out in a strategy
• Interim market data management, if necessary, to bridge short-term gaps and accompany a strategic realignment.
• Better control over the use of data in order to realise long-term savings potential and ensure needs-based use.

An overarching strategy ensures the efficient utilisation of market data. Long-term savings potential can be realised through targeted control of data usage, while data is used in line with demand. At the same time, market data management must be organised in such a way that market data requirements are covered in the long term.

Optimising the supply of market data requires a systematic approach that includes various professional, technical and commercial measures. Companies can achieve considerable savings through targeted cost reduction projects.

In an effective project approach to cost reduction, the measures can be organised as follows:

1. Technical: Analysis of processes for the procurement, storage, use and distribution of data in order to identify optimisation opportunities.
2. Technical: Optimisation of the technical infrastructure in order to make interfaces more efficient by harmonising processes and systems and thus reduce data consumption.
3. Commercial: Contract review and renegotiation with providers to identify optimised licensing models and achieve long-term cost reductions.

All three blocks of measures can be implemented in parallel.

The consistent implementation of these measures leads to a rapid amortisation of the project costs, as savings can often be realised in the short term. Optimisation potential can be quickly identified as part of an initial analysis, which can be realised to varying degrees.

A structured concept for market data supply ensures that data is selected in a targeted manner, utilised transparently and used in accordance with the rules. The selection of data products is based on the specific business requirements. Transparency regarding origin, utilisation and costs avoids unnecessary expenditure and enables efficient use. Adherence to licensing regulations minimises compliance risks.

In addition to short-term optimisations, a long-term strategy is crucial to ensure a sustainable and cost-efficient supply of market data. This includes regularly reviewing costs and continuously adapting the data strategy. Flexibility in data procurement helps to avoid dependency on individual providers and at the same time strengthens the negotiating position in order to achieve better contract conditions. Transparency regarding data costs and utilisation helps to reduce unnecessary expenditure. Clear role and process definitions enable efficient control and management of the data strategy. In addition, adherence to licence conditions ensures that compliance risks are minimised.

A well thought-out and structured concept for market data supply therefore not only offers companies short-term savings potential, but also creates the basis for efficient and compliant utilisation of market data in the long term.

Source: KPMG Corporate Treasury News, Issue 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