"Well now we really have the data, mandated under MiFID II, yet as Sean eloquently explains, it remains out of reach and therefore of little value. If we really care about increased flow, then we need to engage in sensible data sharing at a wholesale level."
Therein lies the crux of the issue, what will trigger the motivation to share and therefore benefit?
Confined data will never reach its full potential. The true proprietary value of data does not originate in privately held pools, but rather in extrapolation of value from universal data sets. By openly sharing data, we open up new markets and avenues rather than restrict our output to limited data sets. Banks need only look to Beyoncé for a successful business model.
Throughout the summer, the city of Victoria, British Columbia, hums with tourists drawn by the area’s staggering natural beauty. In the early mornings, the waters of the harbor are mixed to a froth by outgoing whale watching boats filled with people hoping to catch a glimpse of an orca (killer whale) pod. Orca are plentiful in the area, and it’s never long before the shriek of a passenger signals the first sighting of a six-foot dorsal fin puncturing the surface of the water. The effect of seeing those creatures in the wild is breathtaking
Data operates in the same way.
Silos Within Silos Behind Walls
The attitude toward proprietary data and its uses in fixed income markets is perhaps more constrictive than that of the (dying) music industry a decade ago. All players in the finance space have a unique perspective on their trading data. A top-tier dealer will observe via flow and volume, while a large fund is able to project investment requirements over an extended timeframe and triangulate incoming quotes. Smaller shops on both sides of the coin are being forced into specialization, but that in itself is a potential goldmine of information points. At present, this proprietary data trickles out to the client base (if at all) through a “give-to-get” methodology. The less liquid the asset class, the more protectionist the policy. I have worked with High Yield trading desks that refused to input their axes into ANY system (including Excel) for fear of information leakage … data protection to the point of absurdity.
Look, I get it; trade flow information in particular is price-sensitive. I am writing this piece from Boston where the well-regarded annual FILS conference took place recently. Every year I hear people complain about liquidity on conference panels, yet the pace of technological adoption for transparency purposes is glacial at best. It’s time to be honest with one another: If we really care about increased flow, then we need to engage in sensible data sharing at a wholesale level. If data is open and shared on responsible platforms, then price sensitivities are reduced and the risks involved with data sharing can be negated to a large degree. We cannot provide lip service to the idea of transparent markets without making efforts to be truly transparent. And – being brutally honest – we don’t have the option of keeping things as they are. In the age of disruption, the fixed income markets are perfectly ripened low-hanging fruit to those outside the industry.
The true proprietary value of data does not originate in privately held pools, but rather in extrapolation of value from universal data sets.