Growing Retail Volumes Drives New Approach to Data Distribution and Licensing
Retail volumes have exploded over the past year due to working from home during the pandemic. Larry Tabb of Bloomberg Research estimated that retail accounted for 23% of U.S. equity trading in 2021, up from 20% in 2020 and 10.1% in 2010. It is a global phenomenon and demand is satisfied by new service delivery models, including free trading, which in turn impacts the need for greater access to data and a proliferation of data sources. Over 90% of attendees to a recent IPSX / QuantHouse / RHL webinar indicated that the recent explosion in retail trading volumes and the move towards more active trading strategies is here to stay.
In response, many brokers need to expand their offerings and improve their infrastructure to remain competitive. The contract for difference (CFD) market continues to grow rapidly as the interest of retail investors outside
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the United States is creating increased demand for new types of instruments. Clients expect their brokers to give them training on the instruments, as well as broad access to data to facilitate their trading. This drive to provide market data to consumers is forcing CFD brokers to interact with new data sources to provide the service expected by clients.
Accessing the right sources of data, the cornerstone of the CFD market, and setting up the right licenses is a complex undertaking. Retail brokers typically don’t have as much experience delivering data as their institutional counterparts and can face the complex usage requirements of a multitude of providers. Once registered, ongoing management and compliance monitoring require expertise and human resources beyond the scope of existing staff.
This increased demand from CFD brokers is also boosting activity on exchanges, which are constantly reviewing their licensing strategies and moving away from access to fixed fees as they see a licensing fee structure based on the brokers’ workflow. , rather than just market sharing. The data. As these data licensing options for CFDs become more complex to understand and more sophisticated to administer, there are more and more potential pitfalls associated with not meeting usage requirements during the subsequent redistribution of data. . As we have seen, companies that break the rules, even inadvertently, can face hefty fines and even lose access to data, severely damaging their business models, competitive position and reputation. It is no longer a rare event.
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CFD brokers have a choice of where to get their data, and simplifying the complex sourcing and monitoring of these data streams is a business imperative for this section of the market. Engaging subject matter data scientists, who can provide access to multiple data sources through a single platform with a modern cloud-based architecture, is a critical need for brokers who want to serve their clients with information under license and ensure good governance. This is especially powerful when combined with an active approach to monitoring current license usage and requirements, allowing organizations to mitigate potential liabilities resulting from misuse of data exchange and data transfer. essentially outsource this potentially difficult task.
Specialist firms can audit brokerage firms’ current data license agreements and optimize them from a cost and risk perspective, ultimately playing the role of trusted advisor to companies looking to navigate market data policies and complex pricing structures.
CFDs are undoubtedly complex instruments, but common licensing errors can be avoided. A combination of technological expertise in data delivery and in-depth experience in data licensing structures will prove to be a powerful tool in helping the industry keep up with the growing demands of retail.
Rafah Hanna is Director, RHL