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Exchanges Explore Data Value

Nasdaq and others wrestle with how and when to sell data

Eyeing market data as a revenue generator, the Nasdaq stock market recently licensed a ticker plant from HyperFeed Technologies in a multimillion-dollar deal - a sign of how financial marketplaces are looking to create data products valuable enough that their customers will pay a premium to get them.

Like Nasdaq, U.S. stock, options and futures exchanges are using technology to create new data products. On top of wanting to make money, exchanges are contemplating new data strategies to improve the quality of their markets and grow their trading volume. Yet in some cases, doing so will entail convincing their customers to pay for real-time data that they're used to getting for free or as part of the cost of membership.

Nasdaq's three-year, multimillion-dollar deal to license HyperFeed's HTPX ticker plant software will allow the largest U.S. electronic marketplace to consolidate its proprietary data feeds with data from external sources through a project it calls Data Factory. For example, for clients involved in both equity and options markets, Nasdaq could take the consolidated options data it receives from the Options Price Reporting Authority (OPRA) and combine that with data from various equity sources, such as the NYSE and AMEX, as well as with Nasdaq's in-house data, says Adena Friedman, EVP of Nasdaq strategy and data products.

Nasdaq is working on requirements and the design for its Data Factory project, but it's not discussing the time table for introducing new feeds yet. "HyperFeed's ticker plant will dramatically increase Nasdaq's ability to put together data products that consolidate data from multiple sources, both internal and external," says Tom Davin, Nasdaq's senior vice president, data products.

The trend represents a shift in exchange data strategies. Stock and options exchanges mainly distribute their feeds through consolidators - third-party vendors such as Reuters, Bloomberg and Thomson Financial - that consolidate the feeds and convert them to a common format. Exchanges get some money for providing that data, but they're looking to move upstream to higher-margin data products. "The boundaries of the market participants - exchanges, vendors and users - in the past were frequently defined by technology considerations and technology costs, and both of these boundaries are diminishing as automation improves and costs are reduced," says Leo McBlain, chairman of the Financial Information Forum, an industry association specializing in market-data-related issues. McBlain predicts that exchanges and customers soon will expand into other segments.

One reason is cost. It can cost as little as $200,000 a year to run a ticker plant, far less than it used to. Much more is automated, so it requires fewer people to code and maintain it. A ticker plant is software running on servers that deposits data, both real-time and delayed, into a central place, where the data can be combined with other sources and manipulated. It also has the ability to compress the data and disseminate it in different formats.

Technology Changes

Advances in ticker plant technology, coupled with the Internet and the increased demand for low-latency data feeds from automated trading applications, are opening the door for exchanges to create custom data products. Market-data vendors know that exchanges are interested, and they are ready to compete by offering higher-value and more comprehensive products. "Our advantage is Thomson has got everything from historical time series and mortgage rates in Australia to Gilts," says Jeremy Lehman, senior vice president, technology, at Thomson Financial.

Other markets see opportunity in expanding in the data business. In 2002, the Chicago Mercantile Exchange (CME) installed a ticker plant platform from CMS WebView. The vast majority of its data revenue still comes from providing data through quote vendors, such as Reuters, Bloomberg and Thomson, that consolidate and redistribute it.

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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