Earlier in 2024 IPCL raised the question of rising market data costs with clients. Feedback was unsurprising and quick, yes it will be a major issue concerning financial institutions this year, so it is proving.
Data is amazing, the more it is used the more it creates which in turn drives increased usage, and inevitably more and higher cost. IPCL estimates at a minimum, market data consumers overspend by 25% to 35% on average so if your bill is $40M pa, $10M pa is potential wastage.
As a benchmark IPCL’s consultants realise an average of 26% annualised market data cost savings.
Planning For Success
Reducing market data spend is now harder to achieve due to contractual obligations, difficulty in removing data integrated into systems and smaller organisations lacking internal experience, resources or both to optimise their market data costs.
IPCL approaches include:
- Traditional cost cutting strategies are the right place to start, but they are only that, the start. Projects require more emphasis on the business’ relationship with its data usage.
- While clients attempt to reduce reliance on traditional suppliers they are becoming more receptive to challenger suppliers as they realise applications, not people, take priority as decision tools. The Cloud and AI makes an impact.
- Analysing the balance between managing data in-house and third party processing, while understanding the appetite for such strategies varies from low to high
- Establishing opportunities to use internal/self sourced data
Changes in strategic approaches to ‘Total Information Management’
Strategies For Success
Finding the balance between the utility of data subscribed to and its cost is challenging because it is not always transparent, for example, an expensive item might only be used twice a year, but without it a high-value client will walk.
One element that gets forgotten is time. Reducing costs is rarely immediate, for instance, a dealer leaves but the desktop terminal remains as a cost because a contract remains in place. Time horizons are needed to plan into the future.
The market data cost control process is an opportunity to re-balance in favour of future data requirements, not simply indulging in knee-jerk cuts because everything is cyclical. Smart preparation now provides the right data tools for market recovery.
Opportunities
To realise 26% market data cost savings IPCL builds upon five pillars
- Cost optimisation as a strategic plan for future usage reinforcing cost savings on a long-term basis
- Validate existing suppliers, evaluate alternatives
- Creating data and workflow balances, the challenge is getting it right
- Better utilisation of internal data adds value and reduces cost
- Understanding market data workflows to gain more efficient market data management and cost control
Well-planned approaches to market data cost optimisation always pays long-term dividends.
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