Market data fees hinder effective risk management - expert

Many firms are making risk management decisions based on the cost of market data, which is problematic for the industry, an expert told FOW.

A key factor impeding firms from moving essential risk management functions into real-time is that the data can cost up to ten times more than historical data, according to Travis Schwab chief executive officer at Texas-based tech firm Eventus Systems.

“If firms are doing more or less than what they can do based on the cost of real-time market data, then that is a problem,” he said.

He added: “That is a big driver of potential change that should happen.”

Although there is an industry wide shift towards having a real-time view of risk, and real-time surveillance, some firms find themselves at a disadvantage as they struggle to cover the costs. 

“As a macro trend, by far the majority of our customers would go real time if they could, but in order to keep the price of surveillance and risk management systems lower, they opt for T+1,” Schwab added.

Offering another example he explained that a futures exchange providing a proprietary feed of market data to a market maker had said no to allowing that same feed to be used for a risk management and surveillance tool.

“We’d like to see more transparency from the exchanges on revenues from market data and a potential reduction in price if market data is attested to be used for risk management and/or surveillance purposes,” Schwab said.

The debate around the cost of market data has been heightened over the last few weeks as the US Securities and Exchange Commission has been taking a closer look at practices among exchanges in the equities market with respect to the ever rising costs of market data.

In September, chief executive officer of Tradition-owned spot FX trading platform ParFX, pointed out that firms without bargaining power are struggling to get value for money.

At the FIA IDX conference in June, Mark Hemsley, president of Cboe Europe, said the industry must make sure it doesn’t “collapse under itself” as it strives to cope with data fees.