Hedge Fund Data Management – Background

Originally hedge funds were small nimble firms that were highly focused on the task of alpha generation. The industry’s out-sized returns soon attracted attention resulting in huge inflows of capital. For many managers this success also came with much greater operational complexity. Key industry developments like the change in hedge fund investor profile from high-net-worth individuals to institutional investors, the move from the single prime model to the multi-prime model, and the increase in regulation due to the 2008 crisis, have all inevitably distracted managers from their core mission of alpha generation.

The subject of hedge fund data management is particularly important because all of the above key industry developments have necessitated onerous and time-consuming reporting requirements. Hedge fund data management is also vital because market data underlies all hedge fund investment strategies. A number of trends in hedge fund data management have greatly increased the associated challenges of dealing with market data including:

1. Soaring quote and execution message rates
2. Continuing fragmentation of execution venues
3. Increasing demand for multi-asset class and global data.

Proliferation of Applications

It is important to note, that not only has there been a significant change in the quantity and type of market data demanded by hedge funds, but also the types of applications that consume this data have changed dramatically. Today, the average hedge fund environment has any number of critical applications. The traditional standard configuration of an order management system plus some type of portfolio management system and/or accounting platform, has been augmented by newer more specialized applications such as execution management systems, research management systems, risk systems etc. These applications make the job of hedge fund data management ever more complex because they all demand market data in different formats, latencies, and degrees of granularity.

Traditional Hedge Fund Data Management

To attempt to manage this increasing complexity, firms have built large hedge fund data management infrastructures.  These invariably include some type of connectivity such as a leased line, software that parses and cleans, and hardware that is used to receive and store the market data. All of this infrastructure has become a considerable distraction to hedge fund managers. Seemingly simple tasks like adding an asset-class or creating a new report can become involved IT projects that suck up valuable resources and cause delays. Looking to the future hedge fund managers see no relief in sight with all of the above mentioned trends pointing to more complexity not less.

A Return to Focus with Cloud-based Hedge Fund Data Management

It is obvious that for many firms in-house hedge fund data management is not a sustainable path. Over time hedge fund data management is likely to consume more and more resources. Fortunately cloud-based market data offers a solution that is far more cost effective and flexible. With this approach there is no need to build out traditional hedge fund data management infrastructure. Hedge funds can simply access their market data via standardized web APIs. Market data can be consumed and paid for on an on-demand basis. The adoption of a market data cloud will allow firms to remove a major distraction so that they can once again be more focused on their core mission of alpha generation.

This is the second post in our “Top 5 Hedge Fund Technology Challenges All Blown Away by the Cloud” multi-part blog series. Be on the look out for the next post “Expanding the Universe of Alpha Generation Possibilities”.

As market data volumes continue to grow exponentially, so too does the burden on wealth managers and financial advisors to identify ways to harness the power of market data and transform it into a meaningful competitive advantage. What’s required is a cohesive market data management strategy that not only simplifies internal operations, but also lays the groundwork for tools that enhance engagement with customers.

Introducing the market data cloud

Cloud technology available today is transforming the way wealth managers and financial advisors manage market data across the enterprise and communicate with clients. Market data clouds enable firms to bypass the sizeable investments in infrastructure, hardware, software, and maintenance that are typically associated with traditional datafeeds. A cloud-based market data management solution helps firms gain economies of scale, lower costs, and increase agility.

Below are five wealth management technology challenges that are addressed by the adoption of a cloud-based data management solution. Future posts in this series will expand on each of these areas.

Wealth management technology challenge #1

Simplifying data management

The daily flood of market data shows no sign of slowing down—in fact, experts project it to accelerate in the coming years. This means that a market data solution must easily scale to meet the needs of tomorrow.

A cloud-based market data solution reduces data management frustrations. The headaches of integrating traditional datafeeds —flat file processing, data cleansing and parsing, network infrastructure, and ongoing system maintenance—disappear with cloud APIs that deliver market data directly to end-user applications.

Wealth management technology challenge #2

Developing new strategies to satisfy more sophisticated customers

In response to the recent economic downturn and substantial losses in the equity markets, wealth management clients are increasingly skeptical of the value that advisors provide. In addition, the ubiquitous availability of financial information and advanced trading capabilities has resulted in greater customer sophistication, requiring advisors to expand their reach and develop new strategies that differentiate.

The market data cloud offers advisors the ability to quickly develop new strategies with instant access to a broad range of financial information spanning equities, fixed income, commodities, options, futures, foreign exchange, mutual funds, and more.  Armed with on-demand, real time information, advisors can respond to client demands more efficiently.

Wealth management technology challenge #3

Staying connected with customers 24/7

One of the key considerations driving any data management strategy is how to leverage technology to forge stronger client relationships. Wealth management customers, particularly the new generation, expect detailed real-time market information wherever they are, whenever they want it. Advisors that deliver branded customer portals or data-rich mobile applications stay better connected with customers while enhancing transparency and trust.

A cloud-based market data solution is well equipped to meet online portal and mobile application challenges head on. Cloud-based web APIs stream real-time and referential data to mobile apps seamlessly. With a market data cloud, firms can reduce the development cycle and launch branded customer portals and mobile applications in less time.

Wealth management technology challenge #4

Reducing market data expenditures

In today’s cost-cutting environment, market data expenditures are under the microscope. This encompasses the cost of the market data itself, as well as the infrastructure and maintenance costs associated with data management.

A cloud-based market data solution enables wealth management firms to optimize market data spend across both of these parameters.  The on-demand pricing structure of a market data cloud solution means that advisors only pay for the data they use. And integrating market data directly from the cloud enables firms to sidestep costly data management efforts.

Wealth management technology challenge #5

Building proprietary investment models and reporting capabilities in Excel

Microsoft Excel is a critical application for investment research, monitoring, and reporting.  Financial advisors require a market data solution that seamlessly integrates real-time information into their proprietary Excel spreadsheets.  But to get this capability in the form of an Excel add-in, advisors often have to pay a premium for desktop terminals, ranging from $5-15K per user per year.

A cloud-based market data solution easily integrates real-time and referential market data into Excel via flexible web APIs, enabling advisors to consider cutting the cord on terminals altogether.  All that’s required is a few lines of code and an internet connection.

The year 2011 proved to be yet another lackluster year for the hedge fund industry. There are any number of possible explanations for why the average hedge fund lost 4.8 per cent including increased volatility, lack of focus, crowded strategies, and regulation. Whatever the precise reason for this continued poor performance, it is likely that the hedge fund industry has only a limited amount of time to get back to the glory years of consistently providing absolute returns, before it risks a significant outflow of assets under management.

The adoption of an on-demand market data cloud instantly benefits the hedge fund industry because it allows firms to address the top 5 hedge fund technology challenges.

This post is the first in a multi-part series that describes the top 5 hedge fund technology challenges all blown away by the market data cloud. In subsequent posts we will examine each of the five hedge fund technology challenges in greater detail.

Hedge Fund Technology Challenge #1

Focusing on alpha generation, not market data management

Now more than ever hedge fund managers need to be laser-focused on their core responsibility of alpha generation. Distractions such as reporting, IT management, and just the general business of running a hedge fund all play a role in reducing the hedge fund industry’s focus on the investment management process. With an on-demand market data cloud all the headaches involved with building and maintaining a market data infrastructure are removed.

Hedge Fund Technology Challenge #2

Expanding the universe of alpha generation possibilities

Hedge funds compete in a world where alpha generation opportunities have become more fleeting and dispersed than ever before. In this new world firms require a market data solution that allows them to quickly analyze a broad set of opportunities wherever they may be. The market data cloud model expands the universe of alpha generation possibilities by putting vast arrays of global and multi-asset class market data right at the fingertips of hedge fund managers.

Hedge Fund Technology Challenge #3

Bringing instant transparency to regulatory and investor reporting

The job of a hedge fund manager has become infinitely more complex with demands for improved transparency coming from seemingly every direction. For many firms this has meant onerous reporting requirements, made even more difficult by inflexible systems, and an inability to quickly access accurate market data. An on-demand market data solution, that offers comprehensive coverage of real-time, historical, and reference data, allows firms to instantly enrich their regulatory and investor reporting.

Hedge Fund Technology Challenge #4

Getting new funds up and running in record time

The health of the industry depends on relatively low barriers to entry for new hedge fund entrants, because as we know, size kills alpha. A major barrier for new funds is the sourcing of baseline market data, and the requirement to build out a market data infrastructure. Adoption of the market data cloud allows new startup hedge funds to focus on other more important tasks so that they can launch sooner, and begin to establish their track records.

Hedge Fund Technology Challenge #5

Add market data quickly to Excel modeling and reporting

Let’s face it most of the hedge fund industry’s important activities such as modeling and reporting are still done in Microsoft Excel. An on-demand solution means no more time wasted wrestling with market data feeds or files. The market data cloud allows firms to quickly add the market data they need, in the format of their choice, for all their Excel modeling and reporting.

The next blog in this series will be “Hedge Fund Technology Challenge #1  – Focusing on alpha generation, not market data management”.

To learn more about the Xignite Market Data Cloud for Hedge Funds email us at sales@xignite.com or  call 1.866.XML.SOAP.

In 2011 the cloud finally went from an unproven curiosity to an accepted mainstream technology solution. In 2012 we will witness the deepening penetration of the cloud into the consciousness of multiple industries.  The market data industry is an interesting case in point because the major industry trends are all pointing to the rapid adoption of an on-demand cloud-based market data solution.

Let’s review each of these trends individually to understand how important the cloud will be for the market data industry in 2012:

1. Market Data Supplier Economics

The suppliers of market data are in a state of flux. On one hand, the cost of business is soaring with the new technology resources required to support sky-rocketing message rates, microsecond execution, and new regulation. On the other hand, the exchanges are experiencing sluggish revenue growth. Traditionally exchanges had four distinct sources of revenue: 1.) execution; 2.) listings; 3.) clearing; and 4.) market data. Of these, only market data is growing, while the others have either completely dried up or are not likely to be a significant source of revenue in the future.  The exchanges have responded to these unfavorable economics with a wave of consolidation in an attempt to reduce costs but the health of the industry depends on growing the revenue side of the equation. The exchanges understand that their best revenue strategy is to distribute their most valuable asset, market data, direct to consumers. This strategy has already seen success with the exchanges offering direct feeds, co-location, and other services to their low-latency clients.

In 2012 we will see more exchanges begin to focus on the largely untapped segment of consumers who need market data, such as historical trade and quote data, but are not latency sensitive. This is potentially a huge revenue source for the exchanges and is ideally suited to the on-demand market data cloud. Forward-thinking exchanges such as CME DataCloud, Direct Edge EdgeBook Cloud, and NASDAQ Data-On-Demand, have already moved in this direction, but 2012 will be the year that many more exchanges embrace the market data cloud to sell directly to consumers.

(Read more about how the exchanges are embracing the cloud in our recent blog post – Cloud Strategy for Exchanges and Financial Markets.)

2. Market Data Consumer Economics

As with the suppliers of market data, consumers are also facing an uncertain future. For many consumers, particularly in the financial services industry, the whole process of data management has become overwhelming. The old model of bringing all market data in-house, so that it can be accessed quickly, is under considerable pressure. There is now simply too much data to do this cost-effectively. Another related issue is time to implementation. With intense competition, many investment firms require immediate access to global and multi-asset class market data. Unfortunately, the traditional method of having a vendor add a feed can be a very slow process. Investment firms require a much more nimble solution that allows them to quickly access discrete data sets.

In 2012 we’ll see more firms conclude that not all data should be brought in-house. This change in mindset will lead firms to become much more discerning about what data should be stored locally, and what data should be retrieved on an ad-hoc basis from a market data cloud.

3. Proliferation of Mobile Devices

It is clear that we are in the midst of a technological sea change as the world moves from an Internet that is tethered to desktop PCs, to one that can be accessed from anywhere, through a wide array of always-on smartphones and tablets. Many experts predict that by 2014 mobile Internet usage will overtake desktop Internet usage. Already in late 2011 we saw mobile-based local search overtake PC-based search. The mobile Internet revolution will affect the market data industry greatly as apps and websites designed specifically for these devices demand more and more market data. An on-demand market data cloud is ideally suited for this mobile revolution because mobile apps typically require only discrete on-demand data sets and app developers are not inclined to build their own data management infrastructures. In 2012 the market data industry will experience a huge uptick in demand from theses mobile devices.

(Read more about the proliferation of mobile devices as it relates to the buy-side The 3 Phase Evolution of Buys-Side Mobile Apps.)

4. Regulation

Regulation is always a factor in any discussion on trends in the market data industry. 2012 will be no exception, particularly because many of the regulations that were proposed in direct response to the financial crisis of 2008, will either be implemented, or will be at a point in the approval process where we will have a better sense of their likely impact. The main thrust of new regulations such as Dodd-Frank, the Volcker Rule, and Basel III, is to manage systemic risk and to force transparency across the financial services industry. All of the important industry players will be significantly impacted including the exchanges, the buy-side and the sell-side.  Complying with these new regulations will involve onerous and costly reporting requirements. These regulatory requests for data will serve to accelerate the adoption of on-demand cloud-based market data solutions because many of the players simply do not have the resources necessary to comply with these and future regulations. It is also likely that regulators themselves will favor cloud-based market data because it will promote industry best practices and transparency.

2012 will certainly be a year to watch for the market data industry and the adoption of the on-demand market data cloud model.  We can expect to see the 4 major trends outlined above to all converge to make this the year of the market data cloud.

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 trading, workflow, integration, and Software-as-a-Service, but the components that make up the software infrastructure of the buy-side have essentially remained the same.

We believe that the arrival of mobile apps to the buy-side will have a profound  impact on the buy-side’s technology, employees, and ultimately the way clients are serviced. This revolution is different than other over-hyped technology fads because it is being driven by the end-user rather than by some easily-ignored top-down management dictum. Buy-side employees have already experienced the power of mobile apps as consumers and will begin using them at work, whether they are approved by their IT department or not.

We see the impact of buy-side mobile apps evolving in three distinct phases:

Phase 1 – View-Only Buy-Side Mobile Apps

Most of today’s buy-side mobile apps build on the anywhere capability of mobile devices and are strictly view-only type offerings, that display the same data that users see on their trading, order management, and portfolio management systems. These research, P&L, and client information apps augment the existing monolithic management systems and are many times used by employees outside of work during commutes or client visits.  The apps are  frequently designed to look like dashboards with the ability to drill-down to more detailed information. There are many examples out there but some of the most widely used are Bloomberg Anywhere for iPad, Merlin’s Compass for iPad, and Fidelity’s WealthCentral  Android/iPhone Mobile Apps.

Phase 2 – Action-Oriented Buy-Side Mobile Apps

This phase goes beyond the view-only capabilities of Phase 1 and allows the user to act on the information presented by their mobile app. Users for example may be alerted to a trading opportunity or a back-office reconciliation issue that they can then immediately act-on, just as if they were sitting in front of their office PC. Again this phase really just serves to augment or duplicate the existing monolithic management system functionality.  Many of the above-named firms are now in the process of releasing these newer more action-oriented Phase 2 buy-side mobile apps.

Phase 3 – Proliferation of Buy-side Mobile Apps/Decomposition of Monolithic Management Systems

The final phase is when mobile apps will really come into their own and we will see them begin to replace rather than just augment pieces of monolithic management systems.  This phase will produce buy-side mobile apps that combine the anywhere/view-only nature of Phase 1, the action-oriented ability of Phase 2, with other unique qualities that only mobile apps can offer. A hint of this future is the StockTouch app (www.stocktouch.com), that is powered by Xignite market data. StockTouch uses the touchscreen interface of the iPhone and iPad to bring to life a visualization of the stock market. Their mobile app offers functionality that no traditional buy-side application can emulate.

Over time we will see a proliferation of these smaller buy-side mobile apps that focus in on specific functionality.  This will lead to a fragmented app market just like in the consumer world. As users spend more and more of their time using these mobile buy-side apps we will see the monolithic management systems become less relevant, ultimately leading to the their decomposition.

Every two years, SIIA/FISD hosts the premier gathering of Market Data Executives & Professionals. Alternating between Europe and the US, this years World Financial Information Conference will be hosted in beautiful San Francisco, October 9 through 12th.

We are happy to announce the 2011 WFIC Pre-Conference Reception, sponsored by Xignite. Hosted at one of San Franciscos most prestigious Wine Clubs, Press Club SF, this event will feature wines from award winning vineyards in Napa, Sonoma, Santa Cruz and Russian River areas.

This complimentary event is open to all FISD Members, WFIC Attendees and a select Xignite Partners, Customers and Friends. Click THIS LINK to view the VIP invite for this event, or click the image below to request participation.

Additionally, if you have yet to register for the 2011 WFIC Conference, now is a great time to do so. Visit THIS PAGE and enter promo code “PRMWFSP” for a special $250 Xignite discount.

Like many of us, you may have run into challenges when importing real-time market data in Excel, Visual Studio & SQL Server. With the recent addition of Xignite Financial Market Data to the Microsoft Azure Marketplace Datamarket, users can now pull live stock quotes directly into Microsoft Excel 2010, develop data rich applications using Visual Studio 2010 and seamlessly populate backend database with SQL Server 2010.

In late 2010, Xignite and Microsoft teamed up to make XigniteBATSLastSale, a real-time stock quote data service, available through the Azure Marketplace Datamarket, with the addition of other datasets scheduled to rollout in the months ahead. With this, Microsoft users can obtain instant online access to real-time stock quotes from the BATS Exchange. Now everyone from hardcore mobile app developers to garage based startups can obtain access to the same professional grade APIs to power their applications.

New to Xignite is the addition of OData, or Open Data Protocol, a method of querying and updating data which unlocks the data from the silos that exist in legacy applications. Today, OData is being used to expose and access information from a variety of sources including, but not limited to, relational databases, file systems, content management systems and traditional Web sites.

Wes Yanaga with Microsoft’s Channel 9 sat down with Shoshanna Budzianowski (SQL Azure) and Chas Cooper (Xignite) to get the low down on what this partnership is all about, and how it will benefit end user around the globe.

After the Channel 9 video was completed, Shoshanna Budzianowski sat down with Marc Bollinger, Web Service Engineer at Xignite, for some one-on-one developer talk and a bit of programming fun (CLICK MORE to see developer video)

Looking forward, Xignite has plans to put the vast majority its data onto the Azure DataMarket. “We have started with our most popular data sets, but will continue to add data until the market is satisfied with what Xignite is offering” said Chas Cooper, VP of Product management at Xignite.

Microsoft brings a very horizontal market to Xignite, with DataMarket providing broad coverage across different verticals. When Microsoft looked for companies to work with on Data Market, two things attracted Microsoft to Xignite; 1) the fact that Xignite understands how to deliver on-demand market data and financial web services” and 2) out of all the financial data providers evaluated for Azure Datamarket, Xignite has the most reasonable, rational terms of use across its data sets. Xignite also uses standards such as SOAP, REST & JSON to make integrate with Xignite’s web services simple and straight forward.

Developers should visit http://datamarket.azure.com, where they can type Xignite into the search bar there and see all of the services available. More information is available at www.xignite.com.

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.

Xignite projects were nominated for three 2011 Inside Market Data Awards, securing wins for ‘Most Innovative Market Data Project’ for the launch of NASDAQ Data-On-Demand and ‘Contract Win of the Year’ for its work with CME Group.

For the past half decade, an innovative Silicon Valley market data provider named Xignite has been skating under the radar of the mainstream Market Data industry, quietly securing over 900 clients and millions in annual revenue.  While we have achieved monumental successes year-over-year, were not a company you frequently read about in the Wall Street Journal.  To this day there are some that have problems pronouncing our name (‘x’ like xray, ’ignite’ like a flame, x-ignite).  Times, they are changing, and were excited to have our recent achievements acknowledged by so many in the industry, even some who cant say our name correctly.

Xignite, its projects and partners were nominated for three Inside Market Data Awards, including “Best New Data Project” and “Most Innovative Market Data Project” for work on NASDAQ Data-On-Demand, and “Contract Win of the Year” for work with CME Group on the CME DataCloud product, launching in late 2011.  Amidst loud applause, CEO Stephane Dubois, and Director of Corporate Marketing Landon Long were on-hand to accept the “Contract Win of the Year” award on behalf of Xignite.  Sheila Shah, Project Manager at NASDAQ OMX was on-hand to accept the award for “Most Innovative Market Data Project”.

While we are happy to be awarded for these projects, we are absolutely humbled that so many of our friends, partners & peers in the industry also recognized these achievements and cast their single vote in our direction.  We would like to thank all those that supported Xignite, helping to make this our most award winning year thus far.  Landon ~

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.

So, if you’re engaged in algorithmic trading, you’ll probably want to make sure you’ve got systems in place to test your algorithms so you’re prepared for any regulatory requirements that might come down the pike. That’s where the market data cloud comes in. If you want to future proof your algorithmic trading systems against any possible testing requirements, you’ll want to look into how you can use the market data cloud to back test your algorithms with minimal expense, time and effort put into building new technology infrastructure.

On-demand market data cloud services like NASDAQ Data-On-Demand offer a new way to hold down both the cost and time investments of getting historical tick data to back test algorithmic trading systems. You can get only the slice of data you need for your specific test conditions, and you only pay for what you use, not the entire universe of data, which dramatically reduces your data costs. On-demand cloud services also let you get highly customized data sets in a variety of common formats (XML, CSV, JSON and so on) which reduces your need to build new technology infrastructure just to load the data into your algorithmic trading systems.

So if Mr. Chilton knocks at your door with the latest issue of Good Housekeeping under one arm, never fear. Just check out NASDAQ Data-On-Demand and rest assured you can handle any algorithmic trading regulatory requirements for back testing that he might have in mind without breaking the bank on new technology infrastructure.

(For more details on Mr. Chilton’s public statements, see the recent Securities Industry News coverage.)