Below I’m just going to focus on market and reference data, but there are two other stories that I’d like to point out from the last week that I might look to address in a future column (and that you should definitely read).

First, Wei-Shen Wong looks at Hong Kong Exchanges and Clearing (HKEx) and how it is looking to leverage smart contracts for its Synapse platform. Sell-side participants are generally positive as to the reasoning behind the build, but observers warn the ambitious project still has challenges to overcome, and compare it to the Australian Securities Exchange’s (ASX) replacement of its Chess platform. Click here to read the full story.

We also have a story about how Goldman Sachs is partnering with risk software vendor MSCI, in a bid to bolster the data and analytics the bank offers its clients—and to reach new ones. Click here to read about that pairing, but this story very much points to broader interoperability trends that we’re seeing the market.

Ok, let’s get to it, you data nerds.

Birds of a feather…

Have you ever looked up to the heavens and seen a flock of birds flying in a perfect “V” formation? Well, they do this to conserve energy during their long migrations north or south. As one scientist described it to National Geographic, “It’s like walking through the snow with your parents when you’re a kid: If you follow their footprints, they make your job easier because they’ve crunched the snow down.”

Essentially, if they don’t work as a team and flap their wings at the right time, they’ll get tired, separated, and likely die. (Only wholesome content here at the Weekly Wrap.) If they work in unison, they can cover vast swaths of land to their breeding/wintering spots.

Now, as regular readers of this post often ask themselves, “What does this have to do with market data?”

I’ll get there, but first, let me set the stage. According to Bob Iati, managing director of TP Icap-owned research firm Burton-Taylor International Consulting, Bloomberg (34%) and Refinitiv (19%) controlled more than half of the market data pie in 2020. The combination of S&P Global and IHS Markit will create another relative giant, pulling in almost 10%. You also have large (but not BBG/Refinitiv-large) providers like Moody’s (5.7%), Factset (4.7%), Morningstar (3.4%), Ice Data Services (3.3%), and Six Financial Information (1.2%).

The next tier (and this is from what I understand, but I do not have numbers), consists of Activ Financial, MayStreet, and perhaps the likes of an Options or Pico or Wall Street Horizon. And then after that, there’s an enormous patchwork quilt of smaller vendors of all shapes, sizes, and specialties that are scrambling to dig up fractions-of-a-percentage-point of the overall market.

Which brings us to Exegy and Vela Trading Systems. As Max Bowie wrote last week, the two have closed a deal to merge under the Exegy brand. Exegy CEO Jim O’Donnell explained that the structure of the deal will help “set us on the path of potential further acquisitions that expand our market data business.”

And Iati said that he believes more M&A will happen in the near future: “We will undoubtedly see more M&A activity in the market data business, both with consolidation of established providers and with entry of new providers. Data is clearly an attractive business as our institutions crave more ammunition for all aspects of the business. We also know that mergers fuel more mergers as the bar is raised for competitors.”

Iati also told me that he would not be surprised if the Big Tech providers, such as Amazon Web Services, Google, and Microsoft, were involved in future M&A. Even though I’ve been writing about Big Tech’s push into the capital markets, I hadn’t thought about them on the market data front. And let me throw in one other group here: massive trading platform providers like SS&C Technologies, Ion Group, or Broadridge haven’t been in the data space, at least not in the way I’m describing above. Well, if they’re buying more into the front office, why wouldn’t they need/want a data solution too?

To boil it all down, you can either pull your services together to create something robust and long-lasting, or go it alone, and risk falling out of the sky or poached by a predator in a way that doesn’t offer favorable results for current employees.

So for Exegy/Vela, presumably the next step would be to build out its market data content and exchange feeds to firmly entrench itself in that third tier that I described above, and they’ll have to do that through acquisitions. Or…perhaps as a combined entity, Exegy/Vela is now more enticing to some other larger vendor?

Either way, the M&A market is likely to expand well beyond those two companies. The giants in the space don’t have the agility to develop new insights and business areas quickly, but they do have the scale and resources to buy something that shows promise and incorporate those tools and services quickly.

On the other hand, many startups/niche players want an exit strategy, as they’re not going to make their millions fighting over crumbs, so they are actively courting the big firms. Other smaller vendors, though, will think that they have something truly unique and will keep on fighting and acquiring—maybe they don’t become BBG/Refinitiv, but maybe they move above the Activs of the world. And, finally, having a niche is nice, but once a company reaches a certain scale content-wise, they also need to think about delivery: Are you satisfied with your clients receiving your data through third-party systems, or do you need your own front-end, datafeeds, web services, and so on? Can you fly by yourself, or do you need some friends to help you along?

As I’ve written about previously (here and here, most recently), the name of the game when it comes to M&A and tech development is creating a sticky ecosystem, from front-office trading to back-office operations, and supplying that one-stop-shop of data. So let me throw out a hypothetical to show how this might look in action.

In the press, FactSet has been rumored relatively recently to be both a potential acquisition target, or acquirer. That latter link points to a FactSet-MSCI merger. Perhaps a deal (and this is all just reckless speculation on my part) with Morningstar would make sense as the combination would provide solid buy-side, investment banking, and investment advisor coverage, and the FactSet folks are certainly intelligent enough to be able to utilize Morningstar’s assets elsewhere across their business. Or, maybe it’s a smaller deal for someone like Wall Street Horizon, as the latter’s events data could potentially work well with FactSet’s Revere Business Industry Classification System, which is its suite of taxonomy products.

Again, it’s important to note that I have absolutely no reason to believe that these deals are imminent; it’s simply to show that it makes complete sense for this M&A cycle to only heat up as we head into a post-Covid world.

There it is, as I see it. Whether you think I’m right or wrong, I’d love to hear from you: anthony.malakian@infopro-digital.com.

Rise of the fees

The London Stock Exchange is raising the fees related to its Sedol identifier. The exchange says that while only the largest firms will see an increase, most users won’t actually be hit (or the increase will be nominal). Others aren’t so sure about that. Anyway, you can read the story here to get both sides.

Exchanges raising fees is hardly Earth-shattering news. And, if you read the LSE’s reason for raising its Sedol prices, it does make sense. The question that users are likely going to ask themselves, though, was whether this was the best way for the LSE to protect its valuable identifier from abuse. OK, you want to change the fee structure to be more equitable? Fine. You want to make sure big- and medium-sized firms aren’t paying the same amount for different usage? Fine. But why not revise it downwards by starting at a lower base? The exchange would still be making as much money, but with customer goodwill.

Also, reading the story, it sounds like the user groups—which were originally brought in on the discussion of an increase—think that they were pushed aside. After getting user groups to survey their members, the exchange then decided it would be more productive to negotiate directly with individual trading firms.

Now, is the LSE wrong for doing this? It’s hard to fault them for dealing more directly with their users, no? And it’s also important to note that, again, the LSE is saying that it’s just the largest firms that will be affected, but the user groups are saying that all their members will be affected—does that mean that their membership is over-weighted with the largest firms?

I don’t have answers to these questions; we’ll simply go with what we reported, but these are the questions that I think industry participants will be asking going forward.

What we do know is that the LSE halted its 2018 reform attempt after pushback, it tried to engage user groups, then it went ahead anyway, but made concessions like phasing in the increases over two years. So who’s right? Who’s wrong? Who knows? What is interesting, though, is that trading firms can’t escape Sedol codes, as they come attached to the market data itself. Additionally, they come from the exchange and via vendors, so you’re stuck with it no matter how you subscribe to LSE data.

Finally, now that Refinitiv is part of the broader London Stock Exchange Group family—and, as noted above, along with BBG, Refinitiv is a giant in the space—will that pairing make Sedols even more embedded and pervasive throughout even more datasets? (I also feel that there’s a Bloomberg Figi angle here, but I’ve already posed enough unanswered questions. But if you have some answers to my questions, hit me up: anthony.malakian@infopro-digital.com.)

The image at the top of the page is “Birds in Snow” by Shibata Zeshin, courtesy of the Cleveland Museum of Art’s open-access program.

Editor’s note: This story was updated to include the market share figures from Bob Iati at Burton-Taylor.