The first article in this series focused on the Challenges of Managing Market Data. Now, we will help guide you through the complex world of market data licensing. We’ve pulled together a list of items to consider when determining what vendor provides the best solution for your business.
When researching market data vendors, you’ll discover that many of them are selling similar services and products that all claim to solve your problems. While this may be true, you want to quickly identify which of the vendors are doing something truly unique. A lot of vendors are simply reselling data without any value-added services. When possible, keep going through the market to find a source that has a particular data offering. By introducing a truly unique set of data, your business could gain an advantage over the competition.
Vendor Data Sourcing
Market data vendors are going to tell you that their solution will solve your problems. Ask the vendors how they source the data. Doing so will help you understand if they are a viable vendor for you to work with based on their data-sourcing strategy. The more specific a vendor is willing to be is an indication they’ll be a better partner in the long term.
You also want to position yourself as close as possible to the originating source of the data you’re interested in access. The benefits of doing so are:
- Direct access and knowledge about how the data is sourced
- Ability to take the data in without any third party changing it or merging it with other data sets
- Better pricing flexibility as there are no markups
Data Quality Assurance
It goes without saying that you want accurate data. The question becomes how do you measure accuracy and how do potential vendors measure accuracy? Before you start evaluating market data sources, you need to establish an internal definition of accuracy, then determine how you will measure that accuracy. You would then ask your potential vendors how accurate their data is and how they measure it. It’s important to understand the vendor’s measurement process in the event that it differs from yours. If it does, there will likely be different results.
Vendors will have tips for how to measure the accuracy of their data. From there, run your evaluation and see how it compares. Understand that prospective vendors will likely want to do their own analysis for you, but at the end of the day, it’s the accuracy that you measure that is most important.
In addition to accuracy, you need to measure data coverage. These two qualities can sometimes be at odds. It is important that you establish which of these qualities is of greater importance to your business. From there, you’ll know how to benchmark the market data sources you’re reviewing.
While the market data industry is constantly growing and evolving, it is not uncommon to find a vendor with great data that is unfortunately delivered over a legacy system. Whether the data is delivered as an outdated API, a slow batch service, or flat file that only updates infrequently, the format in which it is delivered can have a big impact on your sourcing decision. You’re going to want the data in a fast and reliable manner. Be sure to do your research and work with your technology team to vet any prospective market data vendor’s data delivery mechanism and ensure it meets your requirements. If not, you could be in a world of hurt once that contract is signed.
Alternative Use Cases
When approaching a market data vendor, you’re likely going to have a specific use case or two in mind for how you want to use their data. It might be a fairly standard use case, or maybe you’re breaking into new territory. Either way, chances are you will want to use the data in a new way months or years into the relationship. Identify vendors who are open to alternative use cases for their data so your company has the ability to be innovative with the data you’ve select. You may not get free reign with the data in the contract, but you should establish early on that your organization will be looking at different use cases for the data. Some vendors will be more difficult than others, but you should know the boundaries with which you have to operate. try to find a vendor that wants to work with you in order to get you the most out of the data you’re licensing.
About S4 Market Data
S4 Market Data is the leading boutique consulting firm for the Financial Information Services Industry in Miami, with a special focus on market data vendor management.