In the financial area, by Market Data Management we refer to the tasks related to providing the right information in the best conditions to the financial decision makers. This information encompasses market data itself but also third-party information feeds, Exchange data, bank data, etc. It can include data created within the entity, reports such as analysis reports, the fundamentals, and all the financial data that affects an issuer (company, local authorities, countries, etc.) and that was created by and for this issuer.
In order to carry out a market data management, many entities decide to create one specialized team or to have several professionals specifically dedicated or partially dedicated to this task. The Market Data management professionals are then in charge of centralizing all the data collected to ensure transparency and have a global view of the company (who uses it, who is in charge of contract’s payment, how they can be managed / renegotiated etc.) and/or the specific financial division which they are responsible for.
Market data management is a complex process that needs to be managed professionally in order to control expensive resources and to make the best out of it.
The decision to analyze this internally or externally (outsourcing this task to experts in the field) is a challenge for many financial entities.
Internal or external Market Data Management?
Market data management can be done either within the entity or by an external firm specialized in the field. Both ways have their strengths and weaknesses, which is why the decision to manage it internally or externally should be taken thoroughly in order to reduce risks.
Internal market data management is a process that requires a lot of expertise and knowledge from the company itself. The head of the department should have a long-standing market data management experiencein order to bring his know-how to the team, to properly lead the department, to be able to source the best of the most recent technologies for market data management and to use them efficiently.
Even though knowledge seems to have an important impact on the market data management, the company needs to keep in mind that a good understandingof the data is mandatory to avoid misinterpretations and make sure that the process is carried out properly.
In fact, Market Data Management is tricky, this is why it is important to avoid unnecessary costs generated by over declaration of usage to data vendors. However, it is also risky to provide incomplete information under declaring it, as vendors are contractually allowed to audit their users. Indeed, they actually do it and an exposure to potential high-level fines is generated. Therefore, the entity will have to invest into a training program in order to spread relevant knowledge and pass on expertise to people in charge of the Market Data Management, to deal with the possibility of mismanagement and to reduce risks.
In contrast to the largest global financial centers, in financial markets where the practice of Market Data Management is not widely spread, there is a lack of properly trained professionals. This creates a specific risk for entities that decide to internalize their Market Data Management activities. Indeed, most entities have difficulties in getting their own-trained professionals. It is very usual having a certain tendency towardsemployees’ turnover in these positions, which occurs even more often with best trained employees. As a consequence, staff retention becomes an issue.
Even though it might seem a complex task from this point of view, maintaining internal teams with the accurate up-to-date Market Data Management training can be weighed against with the induced costs of an external service provided by a company of experts.
Since the process is fully performed internally, another interesting benefit from the internal management is related to the perception of confidentiality of the information, which is better protected even though it is limited by the eventual employee turnover.
A Market Data Management can also be supported by an external company specialized in the field. The externalization of Market Data Management may be complete or partial. Similar to the internal management, an external management has its pros and cons.
One of the main benefits of relying on an external company is that it will allow the firm to have experts in the field at its disposal, and make the Market Data Management transparent and compliant with the current laws. Furthermore, through an external service the entity will not have to manage a whole team of internal experts, which generates extra expenses in terms of human resources management.
Even though taking on an external company sometimes implies additional costs, it enables the entity to reduce the above-mentioned risks.
The external company, expert in Market Data Management is not only in charge of the data management but also of counseling. As it is made up of financial specialists, the external company is the right one to give advice to the entity, in order to optimize the processes,set an optimization path to follow, and increase the company´s efficiency.
Flexibility is another benefit, which involves the external service of the Market Data Management. Allocating valuable resources to Market Data Management can be very expensive for some small or medium organizations. Through an external expert service, the company´s needs can be met without cutting down on the know-howquality.
As a result, thanks to a better management of the information, as well as to the risks’ reduction, the eventual induced costs shall be absorbed.
Each company in the field of Market Data should take into consideration the above-mentioned facts, in order to ensure full transparency of Market Data across the company. Whether the objective is to control it properly, to optimize the processes or to be compliant with the laws, the decision should be thoroughly taken in order to fit perfectly with the vision and the mission of the firm.