Growing importance of Historical Market data

The market data industry has been a hub of activity in the last few years. A number of leading global exchange groups have used their proprietary market data to create a steady revenue stream for themselves. Various other firms are also trying to utilize their market data processing capabilities and create a niche in the market. Against this larger backdrop, Celent has been conducting some research of late on the historical market data space. The spurt of regulation in the last few years means that firms have to test their current capabilities against upcoming regulatory requirements. This is something that all capital market participants regardless of size would have to do much more of. The only difference is whether this testing happens in-house or using a market data vendor capable of providing such analysis. Generally, the tendency for larger, traditional buyside firms has been to use third party vendors, while most hedge funds prefer to undertake their own analysis. The latter are also major players for back-testing related to low latency trading strategies. This is the other important area where historical data is used and understandably has become a high growth segment for market data providers. Overall, the significance of these growing uses for historical market data is that data providers are now beginning to see it as a standalone business segment. Instead of providing such data at a low cost, or almost free, to their existing users and even new users, these vendors are now realizing that it is possible for them to price it in a fashion similar to real-time data, the main difference being the more one-off nature of the historical data market. This development has been concurrent with the rising use of market data analytics. Firms today realize that they have a wealth of data at their disposal which they can gain insights from. Industry incumbents see analytics as one of the main growth areas in market data, as the rest of the market becomes more commoditized. Another response to the high level of competition is the focus on historical data for OTC derivatives. Unlike exchange-traded data, data for OTC derivatives and exotic products is more difficult to procure and hence a more attractive segment for providers that serve these products. All in all, there is a lot of activity in this market data segment, not to mention the fact that it is also the focus of an upcoming Celent report.