February 11, 2008

Inside Market Data - Special Report

Fixed Income, FX Drive 2007 Data Spend

Global spend on financial data could reach $24.3 billion in 2008, driven by demand from sales and trading operations, up from $23 billion last year, according to research released last week from Burton-Taylor International Consulting.

Broken down by region, the Americas accounted for $11.75 billion, while firms in EMEA and Asia spent $8.52 billion and $2.72 billion last year, respectively.

Fixed-income and foreign exchange sales and trading groups account for the largest spend on financial data in every region, says Douglas B Taylor, managing partner at Burton-Taylor. The sophistication of fixed-income instruments makes associated data products proportionally more expensive, while data products used in equity sales and trading, such as exchange feeds, have become relatively commoditized, he says.

However, equity sales and trading accounts for the second-largest area of spend in Europe, according to the report. Taylor says this could be a result of the proliferation of new markets and trading venues in that region over the past year.

The second-largest driver of spend in the Americas and Asia is investment management businesses, where portfolio managers require large quantities of data and face fewer budget constraints, Taylor says.  However, the data landscape is expected to change this year following the merger of Thomson and Reuters, which would hold a combined market share of around 32 percent globally-a 26.5 percent share in the Americas, a 37.5 percent share in EMEA, and a 40.7 percent share in Asia.

Currently, Bloomberg has the largest market share for the Americas, with just over 20 percent, followed by Thomson and Reuters, each with market shares of approximately 15 percent, Taylor says, although Reuters is still the largest provider in EMEA and Asia, with 33.3 percent and 37.2 percent market shares in those regions, while Thomson's share of those markets is less than five percent.

Taylor says the pending merger raises questions about whether other vendors such as Interactive Data or FactSet Research Systems can fulfill the role of a third major vendor to stimulate "quality, support and competitive pricing," and also how Thomson-Reuters will refashion its business, and whether overlapping or redundant offerings will be divested.

He suggests that the combined entity may seek to raise the low margins of its wealth management offering, where Thomson dominates the US market. "This could be an area where the combination will look to increase returns by moving to hosted solutions, outside partnerships or even consider a divestiture," he says. The merged vendor may also consider divestitures from its research offerings, which include Thomson Investext, FirstCall and Reuters' Multex, which "will create a certain level of content redundancy, because some research publishers deliver through both platforms," he adds.

The vendors may also have overlap in news content and production, Taylor says, adding that Reuters' status as "arguably the world's leader in financial news" could make some of the content and capacity of the AFX News operations acquired by Thomson in Europe and Asia redundant.

The merger may also create the opportunity to combine relative strengths of the vendors' product lines. For example, Thomson's Datastream historical time-series and economic database is a recognized brand with a deeper database, but the EcoWin business acquired by Reuters in 2005 utilizes newer technology and is considered to have a friendlier user interface-so the combination could "leverage the usability of EcoWin by moving the content from the Datastream database to EcoWin," Taylor says.

by Vicki Chan