By John McCrank and Abhishek Manikandan (Reuters) - Cboe Global Markets Inc plans to build a research and data platform that will provide its customers with trading insights and spur new financial products, the exchange operator said after posting better-than-expected earnings on Friday. Cboe, which has operations in the United States and Europe, and runs stock, options, currency and futures exchanges, said the new platform would include raw market data and derived data from its existing products. The platform is still in early stages but will eventually "help fuel the long-term growth" of Cboe, Chief Executive Officer Ed Tilly said on a conference call with analysts. "This is a very exciting project for our team and one that leverages unique Cboe strengths, technology, research and development to provide tailored trading strategies for our customers and to inform the creation of new Cboe proprietary products," he said. Exchanges have increasingly been leveraging trading data to create new products, such as indices and pricing tools, as well as selling raw data for back-testing algorithms, giving them steady streams of revenue that are less dependent on market volatility than trading revenue. The growing importance of data to exchanges was highlighted on Thursday, when the London Stock Exchange Group formally announced a $27 billion deal to buy Refinitiv, the financial data provider recently spun out by Reuters' parent company, Thomson Reuters. Chicago-based Cboe's proprietary products, such as the VIX volatility index - known as Wall Street's fear gauge - and S&P 500 options, generate a substantial portion of the company's profits. The company said its net income rose to $87.6 million, or 78 cents a share, in the second quarter ended June 30, from $82.4 million, or 73 cents, a year earlier, primarily driven by higher trading volume in proprietary products. Stripping out one-time items like acquisition-related expenses, Cboe earned $1.13 per share, beating the mean estimate of analysts by six cents, according to IBES data from Refinitiv. Net revenue fell marginally to $283.2 million, due in part to a drop in market share in U.S. equities to 15.7% in the quarter, from 18.9% a year earlier.
I think we have entered an Era in financial markets where operators start to realize that data can be a very big profitable business. Bloomberg for example has for decades neglected the need for data solutions in its product offerings. Until today their desktop license is incredibly restrictive when it comes to data allowances. They still don't understand that there are tons of players in the market that need more than 100 data points per month on an Excel sheet but at the same time those players are unable to shell out hundreds of thousands or millions for complex data solutions. There is still hardly any provider worldwide that offers market data solutions that suit the needs of more demanding clients without breaking their pockets.
It's not the vendor fees that are the problem...it's the exchange fees, particularly non-display. $2k/month for BBG (or even less for TR/Refinitiv) is not unmanageable for most, but mid-five/six figures per month certainly is. So at the end of the day, vendors could give away data for free, but you would still have to shell out to the exchanges.
Partly agree, it's very restrictive exchange or indexer fees that blow data costs out of proportion so far. But Bloomberg and Revinitiv so far happily priced up their data offerings as well. Bloomberg bpipe costs a fortune, so does rmds. Also other Bloomberg data solutions are pricing out many startup funds or those in the mid tier segment. There is a reason bbg has an entire global dedicated team that chases after non compliant users. Instead of customizing an affordable product for them they rather threaten with shutdowns or law suits. Bloomberg in my opinion is literally begging for third parties to catch up to them regarding pure market data products.
As I said before...BBG can give the data away for free...you will still be paying tens of thousands per month to the exchanges for non-display (dependant on exchange subscriptions). You can avoid this if you are an individual, but then you get destroyed on taxes and are personally liable for blowups exceeding account value. It's as if the exchanges do not want you to trade...they want to severely limit the amount of electronic players. They've done a spectacular job in that respect.
August 01, 2019 LSE/Refinitiv: Panning for Gold in Financial Flotsam & Jetsam Larry Tabb TABB Group Follow | Profile | More Share The value of market data has exploded in recent years, providing clear justification for the London Stock Exchange’s interest in acquiring Refinitiv. But, as TABB Group founder and research chairman Larry Tabb explains, the index data revenue opportunity is even greater than it first appears. Market data is hot. Who knew that the flotsam and jetsam of the trading business could be more valuable than matching buyers and sellers? Well, those who did certainly have pocketed a hefty profit. Pearson, the company that previously owned the Financial Times, sold Interactive Data Corp. for $2 billion in 2010. If it had only held on for five more years, Pearson could have sold IDC to the ICE for $5.2 billion. A top line return of 250% in five years – not bad. But given the leverage employed by Silver Lake and Warburg Pincus, which sold IDC to the Intercontinental Exchange, I am sure they pocketed many times the top line return. More recently, the Thomson family (who owned a controlling interest in Thomson Reuters) sold 55% of Refinitiv, the financial and risk business of Thomson Reuters, to Blackstone in October 2018, at a value of $20 billion; in less than 10 months Blackstone has orchestrated a deal to sell Refinitv to the London Stock Exchange at a value of $27 billion. That’s a back-of-the-envelope return to Blackstone of $3.8 billion on an $11.8 billion investment, or approximately 26% in 10 months. This doesn’t even include the debt financing employed to purchase the firm, as well as its spin-off of Tradeweb that raised an additional $1 billion. Not too shabby for less than a year’s worth of work. But what is the LSE buying and how will the LSE spin Refinitiv gold into platinum or rhodium (the most expensive metal)? Clearly, Refinitiv has market data, analytics and a lot of platform technology. But can an exchange monetize non-exchange market data and infrastructure in the same way that it can monetize exchange data? [Related: “Refinitiv – What Other Choice Does the London Stock Exchange Really Have?”] To answer that question, you need to understand a little bit about the economics of market data. Market data (the data sold by Refinitiv, Bloomberg, FactSet, SIX, and Interactive Data) is very different than exchange data. Exchanges monetize data in five basic ways: trading, viewing, valuation, analytics, and reference data. Since the exchanges actually own this data, they can maximize the valuation of this information throughout the supply chain as data moves from the exchange to real-time and delayed consumers, through direct channels as well as redistributors, front-end providers, and a host of risk and analytics platforms. Create once, monetize multiple times. On the other hand, market data providers, in many circumstances, do not own the data they provide. They are redistributors of other firms’ data. In most cases, market data providers do not control the underlying data they aggregate and distribute. This is a critical challenge for most market data platforms. Similar to a trading house, if you don’t control the three legs of a trade (origination, financing/carry, and distribution), it becomes difficult to monetize. If a market data firm doesn’t control the underlying asset, then it cannot control the cost of the product. While Refinitiv owns the foreign exchange data generated from FXall and FXT and shares fixed income data revenues with Tradeweb, the majority of data that Refinitiv supplies is generated by others, either dealers, inter-dealer-brokers, or third-party exchanges and trading platforms. While Refinitiv can secure redistribution revenue, since it is not the primary source of the data, it does not own the underlying asset. Now, the data business isn’t as simple as owning the data or not; there is a very lucrative business in enriching and enhancing data, as a third party can acquire, enhance, and subsequently redistribute a modified stream of market information that now falls outside of the original data license. But clearly, it is better to own the full value chain. That brings me back to LSE/Refinitiv. While exchanges love to sell their own data, they really love the potential of index data. If market data is the exchanges’ roadster, index data is their dragster. By acquiring Refinitiv, LSE can tap this lucrative business. Index data, unlike traditional market data, is monetized not only by selling the underlying index value, but also by monetizing any trading products based on the index, as well as through an assets-under-management fee for any asset managed according to index. And of course, trading products, such as futures and swaps, not only generate transaction fees and clearing revenues, they also generate a stream of data that in and of itself can be monetized. However, given that the index is composed of a stream of prices that the provider has enriched, if the index provider isn’t the source of the underlying data, the original data owner (i.e., the exchange) misses out on a very large cut of the revenue stream. Let’s take the S&P 500 index as an example. The S&P 500 itself is a composite of the 500 largest US companies. While S&P initially needs to buy data from the exchanges (NYSE and Nasdaq) to build the index, it doesn’t have to pay the exchanges a redistribution fee for IBM or Apple prices as a composite of the index. Of course, the S&P 500 not only spins off data revenue from publishing the index, it also obtains licensing revenues from any options, futures or ETFs based upon the index. S&P also generates an asset management fee for any funds managed against S&P 500 ETFs and ETPs, and any funds passively managed against the S&P 500. So for just determining the composition and weighting and aggregating the real-time pricing of 500 US equities, S&P gets to sell the market data and obtain a licensing fee for a host of ETF, ETP, options and futures contracts, as well as charge an AuM fee to every fund that manages an S&P 500 index fund (or ETP). Nice work if you can get it. While the LSE doesn’t own the S&P 500 (S&P does), it does own one of the most important index families: FTSE Russell. FTSE Russell is the owner of the FTSE 100 index and other FTSE index derivatives, as well as the Russell complex of indexes acquired in 2014 when the LSE acquired the Frank Russell Company. The combination of Refinitiv, the LSE, FTSE Russell, and the London Clearinghouse (LCH, which the LSE also owns) will provide massive upside potential. Even if Refinitiv doesn’t increase market data prices one iota (which I expect it will), a LSE/FTSE Russell/LCH/Refinitiv partnership enables the combined organization to create a universe of new index products and develop a host of trading products based upon those indices – that can be implemented either through ETFs or futures and options, which can trade directly on the LSE, or through an unlimited number of branded swaps, which can be cleared through the largest swaps clearinghouse on the globe. This is a brilliant strategy that can only be executed by one of a very small number of platforms and combinations. And this is especially true with the LSE and Refinitv, a data firm that specializes in aggregating and distributing not only a global panoply of exchange-based financial information, but, more critical, the vast trove of OTC data that few, if any, providers outside of Bloomberg have access to. While anyone can create an equity index, very few have the content and capabilities to create global cross-asset-based content, which can be licensed and distributed around the world by a globally recognized index brand with the cash, derivatives trading and clearing capability needed to monetize the complete value chain. Pretty impressive.