Financial Market Data Web Services – Xignite Blog

Technology has led a dynamic transformation of the exchange industry, and cloud strategies are an important factor in unlocking the revenue potential of exchange data.  The following article about how to monetize exchange data via the cloud was recently published in “How To Build An Exchange,” a fascinating must-read collection from our friends at Mondo Visione.  Request access to the full collection from Mondo Visione here. 

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Monetizing Market Data in an Evolving Global Marketplace

The global environment for exchanges and data originators is rapidly evolving with exploding data volumes, increasing and unpredictable regulation, expanding variety of financial instruments, fragmenting market, competitive encroachment and the need for new sources of revenue. Beyond these challenges, the race to microsecond latency will stretch the infrastructure capacities and budgets at major financial services firms.

Exchanges and data originators are struggling to service the opportunities of the future with the products and solutions of the past. A paradigm shift is rapidly approaching as old monolithic systems designed for universal applicability are being replaced by new custom tailored micro and mobile apps designed to satisfy the needs of a specific knowledge worker or user type.

The emergence of new mobile technologies and use-specific applications is altering the usage patterns of market data and changing the ways market data is purchased and consumed. If an emerging exchange is to succeed, it must tackle these issues in new ways.

A few years from now the market data application mix will boil down to two distinct flavors: low latency and everything else. How will exchanges capture new market data revenue profitably and manage the delivery of these two distinct flavors when their target applications, usage patterns and infrastructure requirements are so dramatically different? Read more

The Last Hold-Out

The fixed income trading world has been the last hold-out in the broad shift towards electronic trading and more transparent centralized trading venues. We’ve already witnessed the other popular financial instruments including equities, options, futures, and currencies, succumb to the inevitable, but fixed income is still dominated by the murky business of OTC trading. There are signs, however, that even this asset class has finally reached a tipping-point, and that we are now on the verge of a new world where the buy-side’s demands for transparency will finally be realized.

To understand what this future may look like we must first understand how fixed income trading got to where it is today.

When Two Sides Collide

The fixed income trading world has always been defined by the opposing interests of the buy-side and the sell-side.

The buy-side has almost uniformly expressed dissatisfaction at the whole fixed income trading process. Complaints include a complete lack of transparency, an inability to obtain reliable price discovery and market data, the high-cost, and the general inefficiency when compared to the electronic trading of other asset classes. More recently there has been intense pressure to include fixed income in electronic multi-asset trading class strategies.

The sell-side on the other-hand has been highly motivated to keep things status quo. Over the years fixed income trading has been a cash cow business for the large Wall Street dealers. For example, fully 52% of Goldman Sachs’ $45 billion revenue in 2009 came from their fixed income trading division. The sell-side understands that moving fixed income trading away from the OTC model to more exchange-like platforms and Alternative Trading Systems (ATS’s) will almost certainly result in greatly reduced profits. The sell-side in their defense has argued that the sheer volume (3 million fixed-income securities and counting) and the inherent complexity of fixed income products does not lend itself to a more standardized and centralized market.

Innovation around the Edges

That is not to say that there has not been innovation or change. Over the years there have been some key developments Read more

There is little doubt that we are in the midst of a technological sea change as the world moves from an Internet that was tethered to PCs, to a world where the Internet can be accessed from anywhere, through a wide array of always-on smartphones and tablets. We’ve all heard the impressive statistics that support this trend with just over 400 million smartphones expected to be sold globally in 2011, and Gartner forecasting that the mobile web will grow to 1 billion smartphones and 320 million tablets sold in 2015.

A Consumer-Driven Revolution

To date this has been very much a consumer-driven revolution with the vast majority of Apple’s 1 billion monthly app downloads being aimed at the consumer. This, however, is beginning to change with more and more consumers demanding the convenience of mobile devices and mobile apps inside the enterprise. We are now seeing growing enterprise adoption with Apple reporting just this week that 92% of Fortune 500 companies are either testing or deploying the iPad. This is an astounding number especially since the iPad product itself did not exist 2 years ago. Closer to home, according to Good Technology, a firm that manages mobile devices for large companies, financial services firms accounted for almost half of all new iPad activations in the second quarter of 2011.

So as this mobile app revolution inexorably makes its way to the buy-side there are a number of questions to be answered:  How will buy-side mobile apps affect the technology landscape? How will buy-side mobile apps change the way people do their jobs? How will buy-side mobile apps allow firms to better serve their clients?

Monolithic Management Systems Meet Buy-Side Mobile Apps

Today, when we look at the applications used by the buy-side we can see that it is still dominated by the same trading, order management, and portfolio management systems, that have been around for the last 20 years. It could be argued that not much has changed. Buy-side employees are still spending most of their day working with these large monolithic management systems. Of course, there have been advances particularly in the areas of Read more

The last few years have been undeniably tough for the once brash hedge fund industry. Recent headlines do not suggest any improvement with August being the worst month for hedge funds since October 2008, and marquee firms like Paulson & Company firm down 34% year-to-date.  Prior to the crisis of 2008, the industry appeared to be on a steady upward trajectory, evolving from a small, scrappy upstart, that catered to high net worth investors, to a more formalized $2 trillion industry, that serviced the largest pension funds in the world. Since the crisis, however, the industry seems to have lost its way. What exactly happened and how can what we term the “Hedge Fund Cloud” return the industry to its former glory?

Institutionalize or Die

Pre-crisis, managers believed that the measure of success was not only returns but assets under management. In their race to acquire new assets, managers were motivated to “institutionalize” their infrastructure so that they could go after the really big allocations from large pension funds and endowments. For many firms this institutionalization meant leaving the relative simplicity of their single prime relationship to the much more complex world of building out their own multi-prime infrastructure. Almost overnight managers found themselves running complex and unwieldy businesses. Seemingly simple operations like adding a strategy, that required a new asset-class, or producing a new report, became long and involved IT projects.  Any thought of outsourcing any of this burden was dismissed because of perceived privacy and control concerns.

Prisoners of their own Hedge fund Infrastructure

The actual crisis further exposed the inflexibility of hedge funds’ infrastructures. Managers struggled to view their true exposure across asset classes and multi-prime relationships. Just when managers most needed their former agility they discovered that they had become prisoners of their own expensive infrastructures.

Fast forward to today. We are still experiencing the after effects of the crisis. A strong regulatory backlash response has been unavoidable. There is still tremendous uncertainly about the true impact of these new regulations, but what is certain, is that the business of running a hedge fund will become even more complex and costly.

How can the industry remove itself from this funk and prepare itself for the next crisis? The answer is that the industry needs to return to basics by once again making alpha generation its sole focus. The industry needs to regain its former investment agility. In short, managers need to get out of the running-a-hedge-fund business and get back to the investment business.

The Hedge Fund Cloud to the Rescue

Fortunately, the Hedge Fund Cloud offers managers the opportunity to get back to basics.  The Hedge Fund Cloud allows Read more

Perhaps nowhere more in the diverse world of hedge fund strategies is the prospect of alpha decay more unsettling than at high-frequency trading firms. In many ways high-frequency trading firms are now facing a reality that other hedge funds with more esoteric strategies may one day face – too much money chasing a finite amount of alpha.

The End of the Hardware Arms Race

The latest figures indicate that high-frequency trading now accounts for somewhere between 60-70% of trading volume in the US. This is up from around 35% just five short years ago. High-frequency trading firms, that in the past have been among the most profitable on Wall Street, are now seeing that increased competition has crowded out many of their traditional strategies. High-frequency trading firms have responded by co-locating their black boxes and by throwing ever more expensive hardware at the problem. This approach has worked for some of the larger, better-funded firms, but only postpones the inevitable.

What will happen when this hardware arms race meets the laws of physics? The answer is that many of these firms will need to develop high-frequency trading strategies where alpha is still relatively abundant and competition less fierce.

New High-Frequency Trading Alpha Opportunities

The two most common opportunities that high-frequency trading are now exploring are as follows:

1. Alpha outside the US – The US was the first to develop electronic trading, other regions are still in the process of building out their electronic trading infrastructure. A recent Credit Suisse study estimated that high-frequency trading activity accounts for 35% in Europe and only 10% in Asia (excluding Japan). Many high-frequency trading firms are now seeking to port the strategies that worked so well in the US over to these less developed markets.
2. Multi-Dimensional Strategies – The traditional strategies of high-frequency trading have typically been one-dimensional involving the high-frequency trading in and out of a single large, liquid name. The newer high-frequency trading strategies are much more complex and multi-dimensional in nature searching for arbitrage opportunities across asset-classes, geographies etc.

The New Arms Race and Cloud-based Market Data

The common thread that runs through these new strategies is the need for access to more diverse and dispersed market data sets. Market data Read more

New to Xignite?  Curious about what we do and what were all about?  This interview with Xignite’s Joel York may provide the answers your looking for.  Visit TMCnet.com to view other videos from leading Silicon Valley companies.

Algorithmic trading firms were put on notice last Monday when Commissioner Bart Chilton of the Commodity Futures Trading Commission (CFTC) said that high frequency trading (HFT) and algorithmic trading firms should be made legally responsible for maintaining a minimum set of testing and monitoring standards to prevent future flash crashes.

The possibility that algorithmic trading firms may need to support new regulatory requirements highlights the rapidly growing importance of the market data cloud and new cloud services like NASDAQ Data-On-Demand for back testing purposes.

In a bid to resuscitate the heroes of 1980’s sitcoms, Mr. Chilton declared, “I want to be like MacGyver. Remember, he was always trying to prevent crime before it happened.” So if you’re a criminally culpable algorithmic trading firm, you’d best beware—especially if Mr. Chilton gets his hands on a paper clip and a stick of chewing gum. Household items aside, Mr. Chilton also plans to rely on tools such as a “kind of Good Housekeeping Seal of Approval.” He’d like algorithmic trading systems to be tested by either exchanges or regulators before going live. And after going live, he’d like algorithmic trading systems to be monitored on an on-going basis.

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