My esteemed colleague and friend Max Bowie had been thinking about a story idea for a long while—who owns the market data that’s created by trading firms and aggregated by the exchanges?

He had already been talking to sources about it, but he wanted to cast a wider net, just in case he was missing something. So on LinkedIn, he wrote this: “Pop quiz on DATA OWNERSHIP: (1) When a firm trades with an exchange or broker, who *owns* the data? (2) Who *SHOULD* own the data? And (3) why does it matter who owns it?”

For the market data crowd, this was as close as a LinkedIn post gets to going viral. The result of those responses and Max’s many, many other conversations on the subject resulted in this 3,000-plus word tome: “Whose data is it, anyway?” If you haven’t read it yet (though MANY of our subscribers have), it’s important to know a few things: First, I won’t be talking much about content from that story…I shall, instead, recklessly speculate based on what was written in that story.

To set the stage, here’s the premise of the changing world of data ownership as I understand it: the key thing to remember is that asset managers, broker-dealers, and exchanges need to figure out new ways to monetize data, as passive strategies, new regulations, and the need to diversify to lessen risk have changed the nature of trading and alpha generation. But I’d contend that even more important is that technological changes are happening so quickly, that capital markets firms are trying to catch up.

Just a few years ago, the idea of using the public cloud for trading purposes was a non-starter. While the vast majority of workloads at banks, asset managers, and exchanges are still done on-prem, there’s a shift happening. This move to the cloud has helped lead to the alternative data revolution. Additionally, efforts to commercialize and democratize AI—specifically, machine learning and natural-language processing—have made it easier to sift through, categorize, and analyze data. At the same time, processing and computing power are only increasing and becoming more affordable. And open-source tools and software delivered as a service have given trading firms a seemingly-endless supply of products to extract value from data.

So, to boil it down, there are economic pressures to monetize data AND it’s easier to aggregate, store, and analyze data. We are heading toward an inflection point.

As Max’s story points out, everyone seems to be okay with this “live and let live” setup—those who believe the exchanges are unjustly claiming ownership of their data aren’t actively fighting it, but are looking for ways around it. And the exchanges are being fairly gracious about ownership, but continue to charge hefty fees for their role in aggregating said data.

Here’s the catch: it only takes one major trading house to break ranks, and this house of cards could come tumbling down. We could be just one dispute or lawsuit away from forcing a big change when it comes to the question of “who owns the data”.

You may remember that a patent-troll company called IXO/Realtime Data alleged that some of the largest organizations in the US financial industry were infringing on patents owned by the company covering methods for compression and encryption of datafeeds. That essentially led the entire industry to stop using the Fast compression protocol, an industry-led standard that at the time was considered essential in curbing the amount of bandwidth required to carry ballooning amounts of derivatives market data. But whether there was any genuine infringement or not, it seems like Fast’s developers didn’t anticipate any challenges to their IP, and didn’t take steps to establish and protect their ownership rights in order to defend against such challenges. As a result, the industry dropped Fast like a hot potato once the lawsuits started flying.

Keep in mind that this issue of “who owns the data” hasn’t been…well…top of mind for most firms. As Max writes, the heads of trading desks aren’t likely thinking about these issues when signing trading agreements, and due to a lack of proper data governance structures at banks and asset managers, not many are raising this as an issue.

BUT…that could soon change. Cloud, AI, SaaS, open-source tools, APIs and interoperability platforms are allowing firms to more easily monetize the data they have and the data they ingest, and there’s so much data to be ingested. But when it comes to the traditional market data that firms create, firms could look to become more discerning in how they structure a trading contract, so as to better create proprietary products based on the trading data they create.

Here’s a (possibly extreme) hypothetical: Let’s say exchanges assert ownership over broader segments of the data pouring into systems. Maybe firms get pissed off and pull their liquidity off exchange—maybe to an ATS or to other exchanges who see ownership as a differentiator (such as what Proof Trading does). Those exchanges’ market share falls, as does the value (and volume) of their data, and so does their market data revenues. (Or perhaps they just jack up the prices for remaining members.)

Another add-on hypothetical: Let’s say user firms throw their weight around and assert ownership of more parts of the data—maybe they want a share of the exchanges’ data revenues that reflects the liquidity they contribute? If the exchanges acquiesce, they lose revenues. If they push back hard, users (assuming they don’t just suck it up) move to other venues.

So, what’s an exchange to do? Buy the venues that order flow migrates to, such as Members Exchange (Memx), as they don’t charge fees (yet), and ATSs, like how Nasdaq bought Inet and Brut in the 2000s?

Or, maybe it’s something even more radical, which is something that Max has been advocating/predicting: If you’re facing declining revenues from your market data, get ahead of that. Equities data is commoditized—so give it away for free. What you charge for is (a) traditional exchange business lines, i.e. listing and trading, (b) how people receive the data, i.e. low latency feeds and cross-connect circuits versus workstations/vendors, (c) data on other asset classes—such as bonds or derivatives—that affect/are linked to the equities, and (d) tools and analytics that help people make sense of all that data together.

Finally, one more thing to consider: LSEG bought Refinitiv, Nasdaq acquired Quandl, Ice has acquired several fixed income data vendors, most notably IDC, etc…it’s becoming a trend where exchanges are buying data vendors. In theory, the exchanges can give the data away, and have its vendor arm charge for all the added-value content and analytics it can package around it. It’s simply a matter of thinking outside of the box.

Right now, this is all (as stated earlier) reckless speculation. But just as trading firms are trying to catch up to the changing technological landscape, they should start taking more seriously the question of, who owns the data?

Think I’m wrong? Missing something? Let me know: anthony.malakian@infopro-digital.com

The image accompanying this article is “A Storm Behind the Isle of Wight” by Julius Caesar Ibbetson, courtesy of the Cleveland Museum of Art’s open-access program.