FMLS 22 Market data amid global turmoil and accelerated digitalisation

This panel focussing on ‘Market data amid global turmoil and accelerated digitalisation’ was held at the Finance Magnates 2022 Expo in London.

The panel, moderated by Rafah Hanna, Director of Hanna Ltd included: James Alexander from 26 Degrees Global Markets, Richard Barden of CBOE and David Hastings of Finalto, Elina Pedersen of Your Bourse and Pietro Calandra of LSEG.

To watch the full interview, click here.

A transcript of questions asked of James Alexander, CCO of 26 Degrees Global Markets.

Moderator Rafah Hanna – When you are licencing, utilising market data, how do you measure or judge your return on investment, return on data investment?

James Alexander – We see that ROI calculation as 2-fold, firstly there is the client side, then there’s our own trading side. On the client-side market data is generally assess against its ability to attract, cross sell or retain clients over a long period of time. This is something which we have seen significant success in, I think one of the things we try and focus in is the direction of travel for the broader industry if I may say, is a move to multi asset trading across listed and OTC markets and all of that being accessible in a single point of contact, single APIs if possible.

That’s something we have seen, we very much keep a keen eye on within our business as to how that multi asset offering actually helps us to attract and particularly retain brokers, I think it’s that retention point that is significantly driven by our breadth of our market data offering and indeed our product offering. On the trading side, it’s about measuring our ability to exit risk, when we have taken that risk in an efficient manner.

How efficiently are we exiting risk, are we subject to any adverse impacts from delays in market data, delivery. That doesn’t just affect our own hedging and our way we exit risk to the various markets, whether they be equities, futures or OTC. It also has a significant impact on our flow profiles that we and our clients, the brokers we serve.

It has a significant impact on the flow profiles we attract based on the quality of our market data. If at any point our market data delivery process, sub optimal in terms of speed of delivery, that is significantly adverse in terms of the flow profiles for not just us but out broker clients and that’s a key metric we keep an eye on and generally reflected through our hedging efficiency.

The conversation transitions as the panelists bounce off each other into the difficulties of licencing seen in various markets and exchanges.

You licence a huge amount of data from different venues, exchanges. What’s your take on how it could be made easier, simpler and more straight forward?

James Alexander – I think it’s an easy win to aim for standardisation of contract types for our specific sector of the industry. I think there are a lot of different ways in which contracts are implemented and commercialised by the various exchanges which creates uncertainty.

Process time and education – How do we make both progress quickly? We all want to get to a place of optimal compliance with our customer bases, it’s in David (David Hastings of Finalto) and my interest to do so, its in the interest most brokers to do so, and certainly in the interests of data vendors and exchanges to do so.

Time – I think it can be improved with a little bit more proactive engagement by the various exchanges and data vendors with key touch points within the industry. I see prime of prime providers such as David and my own organisations as among those key touch points. There actually aren’t many of us, I don’t believe.

I think if done well and are legitimately engaging with the exchanges. I think there’s a relatively small number of greater engagement and collaboration as has been the case historically between exchanges and the data vendors themselves, the same should in my opinion apply to those key touch points within the industry.

Then there’s education, so streamlining it for contract types and commercialisation, sure! Exchanges should be doing those things in my opinion. Also there needs to be greater collaboration with those key touch points in driving the messages forward because often we find ourselves in our space as a prime of prime provider, having to be the enforcer and the educator, having to be the one to take this conversation to the streets, so to speak.

We’re the ones out there beating the heads of those who are unable to comply due to lack of understanding or unwilling. If they are unwilling, there’s very little we can do often, we just don’t engage with those clients, and they are always going to be there.

It’s those that don’t understand or are being potentially being mislead due to conflicts in messaging from other sections of the industry, which is a really challenging conversation, which leaves us, the brokers having to be the educators and the cops on the beat so to speak. That’s a role we absolutely understand, there’s a risk to that role and a challenge there, but there’s also a great reward in doing that role well.

However, I do think that process time and education could be sped up with greater engagement with those key touch points and cleaner messaging to market because I think there is still, in some segments of our industry a lack of understanding as to what proper licencing looks like because it is still quite disparate.

David Hastings of Finalto Financial services agrees to James Alexander “I am spending more and more time on a daily basis, trying to deconstruct some of the communication coming from the exchanges so we know exactly where we are…because most of the contracts within the exchanges are so different in a lot of cases, it takes us a lot of time to understand it and implement those restrictions on the end clients. It’s an ongoing process until we get to a unified…”

Moderator Rafah Hanna comments on this discussion and references a study conducted by Finance Magnates 2 years ago on CFD brokers and found enough evidence to say that between 25%-40% of brokers were engaging in some form of non-licenced activity or their clients were.

What’s the next innovation as exchange groups grow and as challenges, what are the user firms seeing?

James Alexander – From our part of the world, which is traditionally Asia based prime of prime, with the exception of a recent acquisition here (referring to 26 Degrees Global Markets’s purchase of GMO-z.com Trade UK). we have a slightly different geographic view, one thing we have observed is the increasing interest in Asian focused market data, whether that be Japanese, Hong Kong or China based market data for equities, swap, futures, these sorts of products. I think there is an increasing demand globally for access to those markets and distribution into those markets.

One thing we are seeing a little bit more, particularly prevalent in Japan, is the rapid adoption of cloud-based technology. Both from a data ingestion point of view and trading infrastructure point of view and I think that’s going to give us all some heart bur in the next few years as we transition from fixed bare metals servers to a more cloud-based structure both for market data and for trading infrastructure. As some (brokers) move and some don’t, it’s going to be a disjointed process. I think there’s going to be a real management piece to be navigated there.

26 Degrees Global Markets a Japanese owned broker and also Finalto has been through immense growth and rebranding in the last 12 months. How are you both coping with the geopolitical difference in terms of trends and dealing with that?

James Alexander – Speaking specifically to CFD and derivative industries, we see a consolidation likely within the next 12-24 months.

David Hastings of Finalto adds “I think there’s going to be a lot of mergers happening in the broker world. It’s not because of bad policies or bad management, it’s just going to be a survive or die mentality”.

Richard Barden, Director, market Data Sales, CBOE provides this outlook, “We saw it in the UK retail brokerage 10-15 years ago, where the Tier 2, T3, T4 brokers just got squeezed. I see that happening in the CFD space (now), those people in the middle are going to be squeezed from the firms moving into that space. The crypto brokers becoming multi-asset or the likes of 26 Degrees of Finalto pressuring them from above”.