May 10, 2010

Inside Market Data - Special Report

Survey: Valuation, Risk, Regulation to Drive Data Spend

Risk management and emerging markets will account for the highest growth in market data spend over this year and next, with valuation tools accounting for the highest single area of expenditure, according to the results of a survey of market data demand conducted by Burton-Taylor International Consulting LLC.

Respondents comprised market data vendors, users and consultants, who indicate that the industry views 2010 as a year of mainly flat or slight growth overall across user types including hedge funds, research analysts and traders-although around 25 percent of respondents expect spend on market data by risk managers to grow by between 2 and 5 percent during 2010, while a further 15 percent expect this spend to grow by 10 percent or more this year, says Douglas B Taylor, managing partner at Burton-Taylor.

However, respondents expect stronger growth across the industry overall in 2011, with more than a quarter of respondents predicting that hedge funds, investment bankers, risk managers and middle- and back-office users will increase their spend by between 2 and 5 percent, while portfolio managers, research analysts and private wealth managers are expected to increase spend by up to two percent.

Spend by risk managers and middle- and back-office users is likely to be driven by valuation, risk management and regulatory requirements, Taylor says, resulting in the strongest growth among data products that serve these markets. In particular, spend on evaluated pricing services is poised for the highest growth, with just over a quarter of respondents expecting growth of between 2 and 5 percent in 2010, and another quarter forecasting growth of 5 percent or more. With more complex instruments being traded, the need to understand how to "de-structure" these instruments, price their value and calculate their risk will be key in driving spend on valuations, Taylor says.

Pricing and reference data, as well as risk management tools, are also projected to be major growth areas in 2010, followed by commodities and energy data. Regulatory requirements that may change how firms report or calculate the value of funds will also affect the data and tools required for compliance, creating "captive demand"-based on fundamental requirements for participation in the market rather than users' strategic needs-for pricing and reference data, Taylor says.

Regionally, China, India and the rest of Asia-excluding Japan-are expected to lead growth in 2010, with around one-third of respondents predicting an increase in spend of 5 percent or more in the region. Respondents also expect Latin America to see strong growth, reflecting growing interest in emerging markets, Taylor says, adding that Eastern Europe, the Middle East and Africa are also expected to see flat or slight growth in 2010.
by Vicki Chan