Advanced Trading: How are hedge funds and small proprietary trading shops obtaining their market data? Do they rely on the sell side, their prime broker or do they go straight to vendors?
Ed Chidsey, of Markit:
Ed Chidsey, of Markit:In a highly regulated world, the buy-side, regardless of size, is increasingly looking toward independent sources, such as financial information services firms, to be trusted providers of data and solutions. Firms like Markit are playing a pivotal role in supplying independent pricing, reference data, pre-trade data analytics and research, post trade analysis and compliance applications to assist in the life cycle of the trade from front, to mid to back office. One of the key trends of the industry over the past few years is to source data from multiple providers to ensure that the buy side receives best-of-breed solutions along with continuity in the event that the service from a vendor is disrupted. We expect this trend to continue.
Check out "Taming the Market Data Beast", Advanced Trading's February cover story on Market Data and its role inside today's Hedge Funds.
Advanced Trading: What are hedge funds biggest challenges when dealing with market data? Do they have the right data management tools to properly do this job?
Chidsey:It is a challenge for small- and mid-sized firms to create industrial- strength data management systems. For them, the alternative is to exploit the expertise of preferred vendors. In larger firms, the issues are different in that a plethora of internal systems and legacy architecture lead to high costs and inefficient or incomplete data flows. The growing trend is for all firms, regardless of size, to move to a robust data management infrastructure that is flexible and allows them source data from multiple sources and integrate internally. Increasingly, firms do not view data management as a critical core competency and are utilizing service providers to provide outsourced solutions. This allows them to consolidate processes and achieve efficiency gains while realizing significant savings.
As an example, Markit's reference data service combines data from multiple sources and permits access based on unique client requirements. This allows clients to receive the information they need while essentially outsourcing the capability to manage those data sets.
Advanced Trading: Are hedge funds open to using cloud solutions for storing their market data? If not, why not? Security issues?
Chidsey:Hedge funds are adopting targeted SaaS solutions that cater to their operational needs (i.e. portfolio management, administration, security master, etc.). In turn, when hedge funds migrate to cloud-based solutions, it creates opportunities to develop value-added SaaS solutions for storing, organizing and analyzing their market data.
Two examples of SaaS offerings are Markit Quotes and Markit Portfolio Valuations. Markit Quotes is a solution that clients use to synthesize and organize pricing information from multiple dealers into a single format that is easy to consume and manage. Markit Portfolio Valuations independently values more than two million derivatives positions each month and delivers mission-critical data to clients via the cloud.
Advanced Trading: Are hedge funds taking advantage of historical data for their investment strategies? Are they adept at using CEP?
Chidsey:Accurate historical data is critical to effectively test and calibrate a risk and trading models. Hedge funds are large consumers of this information, and will use pattern recognition tools to discern exploitable opportunities from historical trends. Transforming raw data into an actionable insight takes a significant amount of work including database development, security mapping and quantitative modeling. The Markit Data Analytics and Research Group aggregates information from disparate data sources to create high-quality, proven trading signals across asset classes. These factors can be used as stand-alone solutions, or combined with proprietary measures to build optimal investment strategies.