Ref Data Industry Embraces Free Data Trend

Regulatory pressure and a growing focus on transparency have resulted in more talk about data vendors offering basic data items for free.

The trend towards increased openness was pioneered by counterparty data vendor Avox, which made 200,000 "skinny" counterparty data records freely available via www.wiki-data.com in June 2009, and Bloomberg, which in the same year started making Bloomberg codes publicly and freely available on the BSYM website (bsym.bloomberg.com).

The expectation now is that other vendors will follow suit. The regulatory debate and planned set-up of the data collection and analysis centre, the Office of Financial Research, in the US has resulted in more vendors exploring new business models due to the changing environment.

Toronto-based Ken Price, CEO, Avox, says he is now having conversations with organizations he never would have expected to speak to before. "We see an increased movement towards openness," he says.

In fact, some suggest this move is essential, considering new regulatory requirements. New York-based Allan Grody, president of Financial Intergroup Advisers, says vendors will have to change. "They will be forced to, as governments and regulators, who oversee financial institutions and financial markets, recognize what is to be a public good and what is commercial interests that have to be separated out," he says, explaining that instrument identifiers, entity identifiers, hierarchy information and terms and conditions data could be seen as basic data that should be made freely available.

"The core of this public good reference data would be administered and maintained by a public, shared reference data utility, shared between industry, vendors and governments," says Grody.

The Avox ‘skinny records', which are provided for free, include the Avox entity identifiers, names and addresses. Price says Avox is inevitably likely to publish even more data sets for free, but "I don't know what and when."

London-based Chris Johnson, head of product management, market data services, fund services, HSBC Securities Services, says he hopes to see data vendors make their proprietary instrument identifiers freely available for use across the industry. "This would provide the means for front-to-back instrument data consistency to support system interoperability and avoid the painful process that would be needed to invent an equivalent new "vendor neutral" industry code to deliver sufficient granularity," he says, adding that the BSYM codes are "well thought out, but can only become useful if they are made available along with cross-references to the Bloomberg tickers and the existing market identifiers, such as ISIN, Cusip and Sedol."

A Win-Win
In general, there is a growing recognition that the financial services community will benefit from sharing basic data. Grody says it would be a win-win for all if more vendors stopped charging for basic data sets, such as identifiers. "Competition would accelerate in that the data vendors would focus on added value products and services vs. the situation now, where they are less incentivized due to their having "locked up" value creation because of proprietary standards," he says.

Instead, market participants suggest vendors should focus resources on value-adding services. Washington, DC-based Bill Nichols, former FISD program director and recently appointed data architecture research at Bridgewater Associates, says the industry has witnessed “commoditization in action,” something that has also happened in many other industries. “What was hard to do becomes simple,” he says.

The recurring theme is that data needed to define entities and instruments, for example, can no longer be categorized as value-adding services. The industry would benefit from having the basics made freely available, while vendors focused on generating revenues from new services and applications.

The BSYM initiative was not specifically driven by the regulatory review, but became part of the Bloomberg strategy following client requests. New York-based Peter Warms, who heads the BSYM initiative at Bloomberg, says the reason for Bloomberg to offer the identifiers for free on the BSYM website is to help clients with connectivity and managing data from multiple vendors. "We think this is a great way to support our clients and the financial market as a whole," he says.

Marketing Benefits
Still, vendors may also realize other benefits from making some data sets freely available.

Copenhagen-based John Visti Madsen, head of market data sourcing and strategy, Saxo Bank, says consuming firms should not choose a particular vendor because they offer subsets of their data free of charge, but it may make sense for vendors to make subsets of data freely available from a marketing perspective, allowing potential consumers to discover the value of the data. "As data consumers we are generally not happy paying for something if we are not convinced of its value, quality and its ability to meet our specific business requirements," he says.

The marketing aspect is one of the benefits Avox has seen. Price says the biggest users of Wiki Data, the free service that now includes data on more than 335,000 entities, are existing clients, but it has also been used by prospects as part of the selection process. "It's about putting the content out there," he says.

This was also one of the initial drivers for Avox to publish data for free. By increasing the number of users of the service, which is based on a contribution model, the data provider receives more feedback on the data and can collect a larger volume of data records.

Price says one of the reasons for Avox to launch Wiki Data was that clients wanted to use the Avox data to meet CRM requirements. To do that, there was a need for a large number of additional data records. "We have not reached that point yet, but there's a lot you can do in today's environment," he says, adding that Wiki Data has also resulted in other new ideas for product development.