In a world in which multi-asset market access is vital for sustainability, direct integrations with several data vendors, exchanges and execution brokers is key. How do you mitigate cost, integration and most importantly, get it right? We speak to some of the industry’s most important figures in this sector on how to break down the barriers
Market data is more than a small barrier for OTC brokers to enter multi asset business, and indeed a very important one to navigate at this pivotal point.
The market data landscape is changing and changing fast, with recent news of the potential merger between S&P and IHS Markit to create a $44 billion data and analytics giant being a very valid testimony to that.
The FX data landscape is also in flux as increased competition among providers threatens to undermine the fees that leading venues are able to charge for their data services, making this a very important matter to consider when developing a brokerage from purely offering OTC derivatives such as spot FX into a fully fledged multi-asset brokerage, a move that is increasingly vital these days.
Whilst regulators in Europe and North America are scrutinising the role of the data vendors, and whether they act in any kind of monopolistic fashion, end users such as brokers and asset managers are beginning to consider ways in which they can reduce their market data costs and are wondering why they are paying for data when certain retail platforms seem to offer that information for next to nothing.
Traditional high-end FX data feeds can cost as much as $50,000 per month and end-users are rightly questioning what they are getting for their money.
However, it’s not just in the provision of data and price feeds which is an area of change. Price discovery and execution and by extension, the FX business model is also evolving and data has a role to play here too
A clear example of this was the recent launch of FX Market Profile by the CME Goup, the operator of the IMM FX futures business and owner of EBS which is a longstanding expert in FX matching and liquidity.
As the retail FX industry continues to evolve and the need to provide full access to global markets within the equities and listed derivatives sectors by connecting to multiple executing venues continues, largely driven by demand from clients who are as sophisticated as professional traders and fully understand the execution model of the retail world, a crossroads has been reached, that being the cost and operational barriers associated with accessing the necessary market data to make it possible, and the potential gain by doing so.
To ascertain the inside view on this important matter, FinanceFeeds today spoke to senior FX industry executives within data vendors and bridge providers in order that this can be discussed and resolved for brokers looking to go down the multi asset route and get it right.
Dmitrii Parilov, Managing Director at dxFeed explained to FinanceFeeds this morning “We completely understand how challenging it may be for OTC brokers to deal with the market data for exchange-traded products. That’s why at dxFeed, we do our best to help them with consulting, providing the best licensing option because many policies and practices are complicated to understand. Moreover, we bundle with exchange-originated feeds to get higher liquidity with minimal licensing fees. We also offer Vendor-of-Record schemes using our licenses, which makes us responsible for onboarding, compliance, and reporting.”
Moving onto the provider of the industry’s most innovative multi-asset platform which has gained significant traction within professional trading entities, hedge funds, asset management companies as well established retail brokerages and is leading the way forward in taking firms into the genuine multi asset arena with full access to global markets, Roman Nalivayko, CEO of TraderEvolution Global looked at this from a multi-asset platform perspective.
“Market data management as well as its cost could be kind of a barrier for companies that expanding to exchange-traded products from the OTC business” said Mr Nalivayko.
“Since for most of the exchanges market data is one of the main sources of profit, they implemented quite complex and strict rules for licensing, data usage, and reporting. This complexity even created a new business niche, there is a number of companies that helping working with the exchanges and optimizing the cost” continued Mr Nalivayko.
“As our platform is mainly used for multi-market and multi-asset projects, market data management is one of the key platform modules. In our case platform can receive the market data directly from the exchange or through the number of the market data vendors integrated, or even combine a few different sources” – Roman Nalivayko, CEO, TraderEvolution Global
Mr Nalivayko concluded “In order to optimize the cost on the platform level, we provide our clients with the ability to generate their own delay data using a built-in engine, work with snapshots instead of real-time data. Also, our clients can benefit from using our proprietary entitlement system that can speed up and simplify processes of market data subscription, reporting, and usage control.”
One company which is extremely well known in the FX industry that has moved significantly into multi-product technology and infrastructure provision and support is oneZero, whose expertise in this matter is very detailed. The company absolutely understands the multi-asset environment, having recently launched its Institutional Hub product which allows clients to define all trading criteria with advanced aggregation, price formation, customized distribution, risk management and systematic hedging. Comprehensive price formation capabilities are used in conjunction with intelligence gained from Insights that allow institutional brokers and banks to analyze their liquidity provider performance and client trading behavior.
This morning, FinanceFeeds spoke to Brian Ellison, Product Designer at oneZero, who explained “One impact of the long shift towards multi-asset trading is the necessity of more and more brokers to have consistent, easy access to a growing number of market data providers. This can be particularly challenging for OTC brokers looking to pivot into a multi-asset environment.”
“Vendors can offer a very much needed helping hand by offering market data integration services which allow brokers to connect to the market data redistributors or direct data source connections of their choice. The key to success will be to ensure the broker, no matter their size or history, can connect to the market data feeds they believe will serve their company and trading partners the best and utilize them in ways they can take full advantage of their data license such as for the creation of instruments like CFDs, market risk management, liquidity optimization, as well as algorithmic pricing and backtesting” explained Mr Ellison.
London based FX industry technology and integration expert Daniel Moczulski is certainly a voice of expertise in this area. Mr Moczulski’s extensive career has spanned leadership positions at large British CFD firms, followed by several years as CEO of his own company, Star Financial Systems, which was successfully sold to Axi just over a year ago.
Mr Moczulski told FinanceFeeds today “Once a brokerage has decided to go multi-asset the biggest operational maze they need to navigate is market data, especially for equities, but increasingly for Indices and commodities. FXs firms have been spoilt on free data feeds from their LPs!”
“Depending on your solution, you could need an agreement with an exchange, and agreement with a price vendor, and then obviously an LP to cover the trades. Sometimes the liquidity provider will act as price vendor, sometimes they won’t” he said.
“Who acts as “Vendor of Record” (VOR) for the exchange? Decide to add a new market? you start again with the new exchange, a new vendor, and so forth. However, I’m happy to say it’s getting easier. The liquidity and technology group Finalto ( previously Tradetech group) offers a comprehensive market data product where they do the hard work. Separately, the CBOE genuinely want to work with the broker to provide an optimal solution. Wholesale Physical equity providers such as Drivewealth are offering technology-led solutions taking away the pain points. It is slowly getting easier!” enthused Mr Moczulski.
Galin Georgiev, CEO of PrimeXM looks at this from a technical point of view. “PrimeXM supports a number of direct integrations with several data vendors, exchanges and execution Brokers. With many providers, we also have direct cross-connects that can be used free of charge via XCore technology. Currently supported data vendors are Morning Star which covers all supported exchanges, including market depth, ICE Data Services which covers all supported markets, Refinitiv (Electron Service) which also covers all supported markets, DxFeed which also covers all supported markets and Trading Technologies which covers all futures exchanges with market data and order routing.”
Mr Georgiev continued “We maintain direct integration & connectivity with CBOE (US), BZX, EDGX, BYX, EDGA, Cboe One (market data), CBOE (Europe and UK) – BXE & CXE (market data), and NSE Kenya which is being finalized for both market data and execution.”
“Market data is one piece of the puzzle though. Order routing is also very important as exchanges follow order-driven execution and conduct that not necessary fit how OTC FX retail platforms and OMS systems are designed and work. PrimeXM supports direct order routing to a number of Institutional Brokers handling execution in Stocks, ETFs, ETNs, CFDs on Stocks (DMA traded). XCore is integrated with Refinitiv ATR (Autex Trade Route) network, where more than 600 execution brokers, banks and market makers can facilitate execution in all markets. Trading Technology is another integrated network that allows Brokers to expand in Futures across all markets” said Mr Georgiev.
“Many Prime of Primes and larger Brokers that utilise XCore technology, also have license arrangements with exchanges for re-distribution or to derive their data. Such firms can facilitate market data distribution and order routing efficiently via native XCore-XCore connections allowing stable “Always On” connectivity between the Maker and Taker within the XCore community. A big plus for companies using our technology is that they can seamlessly manage all their data feeds and execution across multiple platforms, bridges/gateways and FIX API connections from a single XCore instance” he concluded.
Mitch Eaglstein, Technology Executive at FDC finalized the thoughts on this matter by explaining “While there does not seem to be a ubiquitous solution to executable market data on exchange traded products yet, brokers can easily add any symbols that their Liquidity Providers offer via the Condor LP Gateway.”
“Condor allows brokers to connect to a variety of Aggregators and Liquidity Providers, configure three tier exchange style margining within the platform, and categorize each symbol by asset class (Equities, Forex, Metals, Crypto, NFT for example) These expansive tools are helpful to any brokerage looking to add a multi asset class offering,” said Mr Eaglstein.
These vital insights are of significant importance to all participants in our industry at this time. It is worth looking at the institutional market data sector, and how enormous sums are being offered to buy market data companies by already very large competitors, creating a potential data monopoly at the top, and given that the retail electronic trading sector often emulates the institutional non-bank sector, this dynamic is well worth taking heed of.
The astonishing price that S&P has agreed to pay for IHS Markit, about which CEO Lance Uggla told employees in a memo that had been in the works for the last few months, highlights the growing importance of big data in financial markets governed by trading algorithms.
The $44 billion price tag which S&P agreed to pay in stock was all over the news because it was being heralded as being the largest deal of 2020, a boost for the market after the pressures of during this year in which many companies in other sectors have been forced into decline by anti-business government ideology.
Of course, the entire acquisition proposal has to be approved, and a merger is likely to draw the attention of regulators, with the deal making the market for financial information even more concentrated. It is certainly of note that London Stock Exchange’s proposed oxymoronic “Merger of Equals” with Deutsche Boerse never went ahead – something that FinanceFeeds had stated from the very beginning of the talks between the two venues, on the basis that a liquidity monopoly would be created and power would be moved to Germany.
Thus, as the deal has been agreed it has yet to face scrutiny from mergers commissions, regulators and anti-monopoly government think tanks. Any thwarting of it would be somewhat hypocritical, however, as Amazon’s AWS has been allowed to have a total data monopoly in the retail FX and CFD world, as it is the only government recognized hosting solution for trade reporting. Wonder how that happened?
The same goes for Alibaba founder and Chinese communist party plant Jack Ma, whose ANT business has aspirations of controlling the global financial data market by listing on a public exchange and expanding worldwide. Thankfully the Chinese government scored an own goal with that one and put a stop to it… for now.
This monumental potential acquisition follows a year after the London Stock Exchange’s $27 billion purchase of Refinitiv, which is still yet to be approved by regulators in the European Union, and during the summer of this year, New York Stock Exchange owner Intercontinental Exchange struck its largest deal ever after it agreed to buy US mortgage data provider Ellie Mae for $11 billion.
Ratings giant S&P was formed in 2011 when former parent firm McGraw-Hill spun it out from its education business, and the company is best known for providing credit ratings for countries and companies, as well as global market information.
IHS Markit is perhaps best known for supplying the monthly Purchasing Managers’ Index (PMI), a measure of economic performance.
The company was formed in 2016 from the merger of data firm IHS and Markit, which was founded by former credit trader Lance Uggla. That deal was worth around $6 billion.
Now, Mr Uggla is going solo, investing in cybersecurity. Does he know something we don’t?
Now is the time to look very closely at how to navigate the market data minefield, and in talking to the right platform provider to take your brokerage multi-asset, along with the right data and integration companies, you will be well set to move to the next very important evolution of electronic trading – the genuine multi-asset business.