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Market Data: Y2K, Capacity Planning and the Internet

The $6 billion market data industry faces exponential growth due to decimalization and the potential for linked options exchanges.

The $6 billion market-data industry began the year having successfully completed the euro conversion in 1998, only to embark on a year of Y2k testing and capacity planning in 1999. Now it will face an exponential surge in quotations traffic from decimalization starting in July 2000, plus the potential for linked options exchanges (WS&T, 2/99). Eyeing the traffic, Primark Corp. acquired A-T Financial for $35 million, looking to leverage A-T's new ticker plant (which replaced Bridge's) to become a major player in the real-time arena (WS&T, 3/99), while PC Quote rolled out HyperFeed 2000, upping the capacity of its market-data feed from 112 and 1024 KB to 2000 KB (WS&T, 7/99).

But as more financial firms merge, consolidate trading desks and look to cut costs, the biggest challenge for vendors will be the Internet, which is lowering the cost of delivering market data, and thus, driving down the price that vendors can charge for it.

While the Internet and online trading have created an insatiable demand for quotes, news and research, the bad news is that "real-time data is increasingly becoming a commodity that is easily and inexpensively obtained," writes TowerGroup analyst Sylvia Chou in a January 1999 report, which predicts that spending will remain stagnant.

Yet, many online brokerages are paying expensive exchange fees to provide their online customers with real-time data. Earlier this year, online brokerages, led by Charles Schwab, began complaining to the SEC that exchanges are profiting from their market-data fees (WS&T, 5/99). Stay tuned for major reforms as the SEC explores all sides of the issue in a market data concept release due out in 2000.

But so far, the major market-data vendors say they are not worried by the threat of the financial dot.coms-like the free CBSMarketWatch.com or TheStreet.com.

Why should they worry? The vast majority of trading and investment institutions which rely on private networks of Reuters, Bloomberg, Bridge and ILX, are not ready to trust the public Internet for their daily real-time news and data needs. TowerGroup's Chou predicts it will take at least until 2002 before the Internet becomes a viable channel for distributing real-time data to the institutional community (Product Digest, Q3/99). As evidence, witness the growth of ILX, which added 17,000 workstations in the first half of 1999, bringing its total to 130,000 terminals, with the new version 7.0 ILX workstation averaging about 2,000 installations per month since its launch at SIA in June (WS&T, 11/99).

Michael Bloomberg told WST that his firm has no intention of boiling down the elite Bloomberg platform to sell to the Internet masses. "If we cut our price in half, we wouldn't sell one more terminal, because we're not price sensitive. You either need our level of sophistication or you don't" (WS&T, 9/99).

While denying any threat, 1999 was the first year that leading market-data suppliers began to embrace Web-enabled technologies. ILX unveiled its Web Windows Workstation (W3) at the June SIA show, with ILXplorer, an embedded browser. But it wasn't until November, when Reuters introduced Reuters Inform for the global agrimarkets and the North American power market, that a traditional vendor used the public Internet and a standard browser (WS&T, 1/00).

Meanwhile, the Internet kept lowering the barriers to entry and started to intrude into the professional space. Upstarts such as NYQuotes have made small inroads into traditional firms, landing 1,000 desktops at Lehman Brothers in April, while Wall Street Source, a Web-based aggregator of financial news, signed up 2,500 investment management firms in its first year (Product Digest, Q3/99). TheStreet.com's professional services group signed deals with large correspondent clearing firms, like Mesirow Financial, (WS&T, 9/99), adding tens of thousands of desktops, boosting revenue and brand recognition.

Closing out the year, Track Data, known for its rapid-fire options quotes and analytics, said it would form an ECN (WS&T, 1/99), signaling that market data vendors fully intend to compete with the big boys of electronic trading.

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio

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