Every penny spent on market data in the capital markets can be seen in two ways: For the end users, it’s a cost, a fee, the price of doing business; for the exchanges, brokers or vendors selling the data, it’s their revenue, their raison d’être. Same coin, different view. But just as different audiences view the same coin differently, they are now also taking a fresh look at the systems that others use to manage those costs.

Inventory management systems are almost ubiquitous among financial firms. For more than two decades, banks, brokers, and buy-side firms have used them to keep track of all the data assets they license, to monitor who’s using what data—or who’s not using data, so it can be switched off or reassigned to another user, so firms can save money. They’re also used to accurately report that usage back to the source, and to reconcile invoices from those data sources against what the firm thinks its usage should cost.

However, as exchanges and other marketplaces begin to roll out self-service portals for clients to buy data services, they’re realizing that these portals need to be underpinned by inventory management systems of a different ilk.

These tools can be used to monitor sales of specific services, which clients those services have been sold to, what license terms those clients have signed up to, and how much revenue the exchange expects to receive from each client. Thus, some vendors are finding a new lease on life for their inventory management systems at the very data sources those systems were originally designed to monitor. For end users, the systems help track costs; for exchanges, the same systems (with a few tweaks) help track revenues.

New York-based DataBP, which has signed up a raft of exchange clients in recent years—including CME Group, the Singapore Exchange and the Australian Securities Exchange—and recently announced that bond trading platform MarketAxess plans to roll out the vendor’s self-service portal to simplify its data licensing processes with customers, has focused on client-facing sales platforms at exchanges since day one, says CEO Mark Schaedel.

Founded by former Nyse data professionals, the vendor’s platform focuses heavily on the licensing aspect of its clients’ sales activities, including vendor approvals, reporting, billing and compliance, reducing or eliminating any ambiguity around what data a client is licensed to use, for what purpose, which version of a contract they are on, and synching with billing and customer-relationship management systems.

The reason these platforms are becoming important for data providers is that new data sources and different license types are creating more complexity around data sales and billing.

“It seems that new data provider entrants see data commercialization strategies as binary—charge or don’t charge—but the reality is there are myriad permutations of licensing and subscription models,” Schaedel says. “The varied models are meant to ensure flexibility and elasticity with use cases which can rationalize the cost … [and] the appropriate models vary by type of data assets and use cases.”

For example, he says, commercial distribution must be differentiated from reference usage, while OTC price fixings and composite prices should be treated—and licensed—differently from tradable dealer prices.

“Both types of prices are used differently and require different commercial strategies. So, the scale of license types that can be supported ensures the best possible fit for use cases,” Schaedel adds. “To grow business, data providers need to manage a diverse array of licenses/use cases to penetrate the broadest market possible requiring automation and tools. That’s where we come in.”

The Nyse connection

But while DataBP has grown rapidly in the space of a few years, it’s not the only game in town. In 2014, around the same time that its founders were setting up the business, their former employer was in the process of separating from the Euronext group of exchanges, following the acquisition of Nyse Euronext by Intercontinental Exchange. One upshot of that spin-out was that Euronext needed its own reporting system, having previously used a Nyse-built system.

The exchange contacted vendors about building a new system to manage client contract licensing, tailored to its data products and policies, but was approached by Dutch vendor Screen Consultants (now part of TRG Screen, after merging with rival The Roberts Group), developer of the InfoMatch inventory management platform. Euronext hadn’t considered these types of vendors because they were focused on the inventory and cost management needs of end-user firms. However, the exchange gave Screen its requirements, and concluded that the vendor could deliver exactly what it needed.

“We spun off from Nyse in 2014, and were up and running on InfoMatch at the beginning of 2015,” says Michael Hodgson, head of real-time data at Euronext. “That was the core. Then in 2018, we rolled out our reporting portal, then more recently we rolled out our client portal where they can manage their agreements and services. They can browse and buy data via the portal. If a client wants, they can be completely self-service.”

This speeds up a client’s ability to order and start using data—and, once the exchange relocates its primary co-location datacenter from Basildon, UK, to Bergamo, Italy, clients will also be able to use the portal to order and deploy all data-related services, including connectivity and physical hardware in its datacenters.

“Before this, there was a certain amount of manual administration and checks on our side … and a lot of that has now gone away. So, instead of a conversation with a client being about whether they’ve ticked all the right boxes, that conversation becomes about how that client is using the data, and how many people are using it,” Hodgson says.

The work completed so far has “enabled us to get a full picture of everything a client does, and to follow all the data flows outside our organization to clients,” Hodgson says, adding that the project has benefited the exchange and user firms alike. “Clients don’t want to spend their time bogged down in billing issues. With this, we can make everything quicker for them, so they can spend their time on other things.”

Further additions planned for the platform this year include creating a usage questionnaire in the portal, based on an audit tool built with TRG Screen’s Axon Financial Systems business last year, and automating the process by which the exchange approves data vendors to provide its data to specific clients. This first effort would bring greater understanding to the audit process, allowing it to move faster, and potentially allowing clients to use that audit module to input and report their usage, Hodgson adds. The second effort would streamline and automate the currently manual processes of requesting access to data and receiving approval to distribute data to clients.

Chris Hutton, head of content and exchanges at TRG Screen (formerly CEO of Axon prior to its acquisition by TRG), says this makes data administration functions easier for both the exchange and its data subscribers.

Ironically, Euronext’s ownership change isn’t the only Nyse connection: Hutton and his Axon co-founders Aaron Garforth and Steve Cowler all previously worked at Nyse in data management, policies and licensing, and reporting. So even though the original deal was signed with Screen Consultants, the acquisitions of both Screen and Axon by TRG has put Hutton’s team back on familiar turf.

TRG Screen built Euronext’s platform with significant input from the exchange, which Hutton says has helped shape its product roadmap for the benefit of other clients, adding that the vendor is free to sell the technology to other exchanges. Indeed, he says data vendors also use TRG Screen’s technology to manage licenses, including Ion Group’s Fidessa business and Web Financial, while several other unnamed exchanges are already using the platform in a similar way to Euronext, for contract management and reconciling invoices.

And as use cases among exchanges and vendors grow, the vendor continuously adds more functionality to the platform. For example, as self-certification becomes more important to clients, TRG has developed a self-certification questionnaire for clients, which helps users identify the best products and license models for their needs, guided through the process by the interface itself. And for the front-end interface to simplify complex workflows, more work constantly needs to be done on the back end.

Room for more in the pool

Any efforts by existing providers to expand their reach into new areas could create opportunities for new players to encroach on their turf, such as Vendex Solutions, whose suite of data management tools include inventory management capabilities; and startup inventory tracking and cost management platform vendor Crizit.

Ethan Shen, CEO of Crizit—which currently monitors Bloomberg enterprise data licenses and data from the vendor’s B-Pipe datafeed, and is expanding its Periscope platform to cover enterprise licenses from Refinitiv as well—says demand is not only being driven by consolidation among established providers, but also by demand for more granular details about what firms and individual business areas are spending on data.

“The starting point is often that a client has received a bill and is apportioning the percentage split of costs between different departments. But nowadays, people no longer accept that—business units are pushing back on being allocated flat overhead costs,” and are instead insisting that data departments clearly demonstrate exactly what costs they incurred, and what they are responsible for paying, Shen says.

With fee compression, margin pressure and other factors impacting all business divisions, departments are in constant competition for resources, and can’t afford to subsidize the data costs of other business lines. It’s not just a matter of slicing the pie differently, but slicing it fairly, he adds.

Shen says Periscope delivers much more granular monitoring and reporting than traditional inventory management systems, to help clients determine what assets they’re capturing data for, and whether they are capturing that data in the most efficient way, from the best source, and at the most efficient frequency. And it does this in real time in a “minimally intrusive” manner—passively monitoring Secure FTP “choke points” at 30-minute intervals, rather than waiting days or weeks, by which time an errant charge or instance of unauthorized usage can grow and be both harder to spot and harder to correct.

“With enterprise data, consumption should be relatively constant. So we help identify all uses and all jobs, so when a job strays outside of its usual behavior patterns—or if someone requests a dataset that costs an enormous amount—the firm gets an alert.”

For example, when teams roll out new features, there’s often a burst of testing that generates an unusual volume of data calls, he says, adding that these alerts can be configured to be sent not only to data teams, but also to end users and heads of desks who would be held responsible for the charges, to help “shorten the feedback loop,” and allow firms to dispute and correct any errors within hours.

In addition to passive alerts, Periscope can also be configured to intercept and block unusual requests for data, and to automate the processes by which exceptions are handled. “We want to shift our clients’ responsibilities from being reactive to being proactive, by suggesting strategies and establishing rules,” Shen says. “Because we have installations across about a dozen clients, we’ve seen a wide array of uses, so our system bakes them into a rules engine that we run on every account.”

The system then learns to spot exceptions—such as duplicate sourcing of the same data by different areas of the same firm—and flags them with specific details of what systems and jobs it relates to, and how often it occurs. This way, data teams know exactly what the problem is, when and where it occurs, how much it costs, and which stakeholder in the business line to address it with.

While Shen says Crizit has no plans to flip to attract exchanges or vendors as clients, and plans to focus exclusively on user firms—though it does have asset servicing firms among its clients, which use Periscope to allocate data costs between their customers—there are others in the mix with established products that could follow the lead of DataBP and TRG, and pursue exchanges as clients. And though consolidation means there’s a shrinking pool of exchange groups, there’s a burgeoning new marketplace for familiar data tools among crypto markets, which could be a potentially lucrative business line for these services.

Another potential market is banks and brokers seeking to commercialize proprietary data products and analytics, and sell them to buy-side clients. DataBP’s Schaedel says the vendor is having lots of conversations with firms about this and says DataBP is planning to launch its cloud entitlements module as a standalone product to connect to its webstore front end to serve that purpose.

Aid for audits

Ultimately, all of these efforts—from streamlined processes between markets and customers to more granular and accurate reporting—could have the knock-on benefit of easing the pain of one of the industry’s most contentious areas: exchange audits. Certainly greater automation should help produce more accuracy, which would lessen the need for audits. And—though Euronext and TRG both say it’s not necessary for clients to use TRG software to interact with any of the functions in the exchange’s portal—using common systems like TRG’s Optimize Spend platform could yield much broader benefits.

“We’d like exchange clients to do everything on this. … We want to become a one-stop shop so that if an end-user client is dealing with an exchange, they can do everything through this portal,” Hutton says.

This could open up a new avenue where inventory management systems become the standardized tool that harmonizes end-to-end data licensing and commercial challenges.

“It makes sense,” says Bernardo Santiago, co-founder and CEO of consultancy S4 Market Data. “At some point, you get enough users on the platform, then it becomes a ‘community’ and becomes the conduit for communication between exchanges and end users. If I were a client using this, it would make me reach out to other exchanges and say, ‘Hey, why aren’t you doing this?’ And at that point, in theory, a consumer could use the inventory system to initiate a request with an exchange they don’t already have contracts in place with, so long as it’s on the platform. If I could just check a box, have that request go to an exchange, and get the approval back [all using the same system], who wouldn’t want that?”

He says inventory systems providers are “sitting on a ton of valuable data”—not because they generate or own data, but rather because they are in a position to control the access to it. However, for these systems to encompass multiple venues—rather than being built as one-off portal solutions—and interoperate in the way that would provide the greatest benefit to end users and exchanges alike, they must overcome the ontological challenge of standardizing how different parties refer differently to each dataset. “You need to make sure everyone is comparing apples to apples. That’s what VendEx is trying to solve for,” he says.

VendEx Solutions (formerly known as International Network Solutions) is a San Francisco-based startup building a suite of data management tools. Its offerings include VSource, a catalog of data vendors and services; VReg, which maps datasets to regulatory needs; and the V-Port vendor management portal, which can be used for procurement, reporting, billing, and inventory management, among other tasks.

VendEx founder and CEO Richard Clements says that to get the full benefit from using inventory management systems on both sides of the exchange/vendor-client ecosystem—and to generate the greatest time and resources savings—those systems need to meet somewhere in the middle.

“It’s good that exchanges are starting to do this work, but a centralized solution is the way forward, because the time needed for clients to access data from all of those individually is still onerous,” Clements says. For an idea of how onerous, VendEx has identified (at time of writing) 3,777 suppliers selling data and related services into the capital markets, and has catalogued 537 of these—and 4,235 of their products—in VLink, its “vendor gateway” into its suite of tools.

“A mid-size client of ours might have more than 500 vendors supplying them 7,000 products, so the idea that they could go to each supplier’s portal is unrealistic. It only makes sense if you have a centralized hub. So, we’re building an end-to-end system that will not only understand usage on both sides, but also understands the rights associated with that usage,” Clements says. “It will make managing usage rights a lot easier and makes invoice reconciliation a thing of the past.”

Not only will using the same systems on both the exchange and user side make end-user reporting more accurate and seamless; it should also help the exchanges eliminate any inaccuracy in their own assumptions about how a client is using their data.

“When it comes to auditing a subscribing customer, there are instances where exchanges can make errors. Nobody enjoys audits, but when they’re wrong, that further damages that relationship,” Hutton says. “This approach makes the client burden less but also makes reporting more accurate. So, this is all about trying to make the relationship better between clients and exchanges.”