... it is imperative that exchanges look for ways to add value and leverage their market data as a source of revenue and competitive advantage.

Success in the financial markets is closely linked to the ability to obtain the right information, in the right format, as quickly as possible. After all, traders rely on market data to make decisions about what to buy or sell. And since automated and algorithmic trading have become significant market forces, the speed at which information is needed has increased accordingly. Strategies can change in seconds, and low latency is critical.

Every trade is a piece of market data in its own right. Considering the level of demand, there is a tremendous opportunity for exchanges to better leverage this asset to improve the quality of their markets, grow their volume, increase revenue and gain competitive advantage.

Exchanges sell data to hundreds of vendors around the world, including consolidators such as Reuters, Bloomberg and Thomson Financial. The real challenge, however, is finding ways to entice vendors, traders and others to pay a premium for data. To accomplish this, exchanges must first identify their particular strengths as well as their customers’ needs. Then they can identify the information gaps in the market and create data products to fill them.

Since, for the most part, the technology exists to cost-effectively create new data products, the focus must shift to packaging the information to make it attractive to various client groups. To meet the needs of investors, this can mean creating new indices, presenting statistics or valuations in a different manner, or portfolio administration.

One example is the partnership between OMX, Iceland and Norway in 2006 to introduce Nordic Indices. This offering has attracted significant interest because it provides valuable information that did not previously exist and serves as a benchmark against which performance can be measured.

The needs of issuers are different. They have an obligation to provide information about issues and events that impact the value of their shares, and exchanges have historically helped them accomplish that via their strong position in information distribution. But as regulations change and competition increases, exchanges need to review their information service offerings.

Some exchanges have turned new regulations, which are often thought of as a burden, to their advantage simply by providing a high-quality service. A few years ago, regulators in the UK introduced new rules that led to the demise of the LSE’s monopoly on exchange news. Even with the increased competition, the LSE maintained its position as market leader because it provided a superior news service.

That same dynamic is about to occur on a wider scale. With the approval of the transparency directive, competition is set to open up across the 25 member states of the EU. With that kind of scale, it is imperative that exchanges look for ways to add value and leverage their market data as a source of revenue and competitive advantage.


Photo Peter Hoelstad

MarketView 2006:3