Kimsey: Developing Markets Driving Data Growth

Stephen Kimsey, founder of Kimsey Consulting and author of the research, says that global market data expenditure is currently estimated at $22.7 billion this year─about 35 percent of total spend on trading technology.

Between 2014 and 2016, Kimsey estimates that market data spend will jump by about 3.7 percent, boosted by an increase in trading positions in "developing" markets of between 2,500 and 3,000 net positions, according to the report. The expected increase in spend compares to a 0.7 percent drop between 2012 and 2014.

"Market data spend is highly influenced by how many people are available to use market data," Kimsey says.

Poland, China and Vietnam are expected to see the greatest percentage growth in spend by 2016, compared to South Africa, Singapore nad Bahrain between 2012 and 2014. Meanwhile, the US, Britain and Japan, which were the highest-spending markets in 2014─though Germany will supplant Japan by 2016─will see comparatively flat growth.

"They [developing markets] need to have more sophisticated market data services," Kimsey says, noting the increasing complexity of the trading environments of these countries. "Demand for more sophisticated Market Data services is driven by many factors, including trader ‘desires.' The global markets are becoming increasingly connected. Regulation and compliance requirements are slowly harmonizing... in the main due to business necessity as a result of increasing connectivity and interaction, [and] many developing/emerging markets are experiencing the development of a more active buy side, placing new demands on many sell-side participants. As markets become more ‘open,' domestic participants need to up their act to effectively compete with new competition (from elsewhere in the world) and to benefit from new opportunities," he adds.

Kimsey also estimates that overall spending on trading technology will jump 6 percent by 2106 compared to 2014, led by an 18 percent increase in capital spend, which includes ensuring systems comply with new regulations, investing in new systems that reflect changes in business focus, and updating systems where investments were postponed during the financial crisis. That compares with a 2.5 percent drop this year, caused by a 3 percent decrease in revenue expenditure and a largely flat capital spend.

"Based on our current analysis, it appears that market participants are still delaying many new technology investment decisions, though it looks as if this will change in the coming 12 to 18 months. Some new technologies and means of delivering solutions (i.e. hosted/managed solutions) are enabling costs to be better constrained. Reduction in trading position numbers also acts as a natural driver for reduced spend. There is also much focus on insuring compliance-an overriding priority for many firms," he says.

Looking forward to 2016, Kimsey also predicts that the number of firms with trading operations will increase by 1 percent, as a result of continued growth and development of buy-side firms, particularly in regions such as the Middle East, Asia Pacific, Africa, and Central and South America. But over the same period, Kimsey predicts a net drop of about 1 percent in the number of trading positions, with larger reductions at sell-side participants in mature regions such as North America and Europe offset by continued expansion and development at buy-side and sell-side firms in other regions.

The analysis is based on primary and secondary research on buy-side and sell-side firms worldwide, and is benchmarked against available vendor data-for example, market data vendors' revenues and the installed client bases of providers of trading technologies, such as trading turrets. The research is updated twice per year, around the middle and end of each year.