The True Cost of Free Market Data

This January the UK’s Financial Conduct Authority (FCA) published a study of the wholesale data market following a year-long investigation into the sector’s efficacy and competitiveness.

The watchdog recognises that wholesale financial markets rely on data to function effectively and efficiently. Stakeholders use wholesale data to identify investment opportunities, execute trades, make investment decisions, evaluate firms’ financial positions and meet regulatory obligations. It notes: “Data markets need to function well so that capital markets make well‑informed decisions on where and how to invest. This is essential for economic growth and the UK’s international competitiveness.” The FCA’s review will explore the pricing dynamics for market data vendors to ensure fairness across the sector. Such an investigation raises the wider question of whether it is worth paying for market data. Why expend already stretched budgets paying for something that is readily available for free? Yet free does not necessarily equate to good value, and market participants – especially those operating in over-the-counter derivatives – need comprehensive, timely and consistent data from independent sources to support their operations.

Quality and quantity

Free data providers have little in the way of incentive to maintain data quality; why offer an optimum service when it is given away. However, data vendors’ entire business models depend on offering quality data that delivers value for money. Here at Parameta Solutions, the data and analytics division of TP ICAP Group, (the world’s largest inter-broker dealer), we have a portfolio of separate and competing brands – PVM, Tullet Prebon and ICAP – which provides an unparalleled view of non-exchange traded securities. Not only does this data cover a vast range of securities, but we never hold positions, and the information is informed by agency pricing rather than trading counterparties, which means our analysis is unbiased, independent and credible.

Choice and transparency

Free data providers will decide what they share and when they share it. This gives users little in the way of control over the information they receive, when it is delivered or the format in which it is allocated. Our teams continuously collate and publish new market data from our trading brands to deliver accurate and timely information in the right context. We can provide real-time data on what are often considered opaque and illiquid markets, shining a light on bid and ask prices, trade volumes and transaction deals. Our data is available as and when it is needed, and can be incorporated seamlessly into workflows, and we have sight across the entire market which allows recipients to tailor the information precisely to their needs. Parameta Solutions’ customers apply our data across their entire business operations from generating alpha, price discovery, risk management and valuation tasks, and ensure firms meet regulatory and compliance requirements.

Competitive advantage

Above all others there is a clear reason why market participants pay for data when free information is readily available: competitive advantage. Relying on the same data that others can access gives firms no edge over their peers and ultimately provides little benefit. Parameta offers scarce, valuable data from its majority market share position in OTC derivatives. We offer data and insights that help understand market performance and identify the right assets to build a diversified, effective portfolio. Further, our data underpins critical stress-testing, meaning more rigorous assessment of the resilience and vulnerability of models and strategies. Relying on free data can only get an organisation so far; while Parameta Solutions can deliver the quality of data to make better investing decisions.

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