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WFIC 2005: Financial Content Searches
for New Profits in Open Markets |
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17 October 2005 |
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The
World Financial Information Conference (WFIC) gathers
every two years to contemplate the state of global
financial content markets, an exercise that this year
attracted some of the best minds in the business to the
conference's Rome venue. The big picture emerging from the
conference is that increasingly transparent markets for
securities trading are placing enormous pressure on
exchanges, vendors and institutions to find profitable
positions in highly regulated markets. Financial content
services that can drive the top line of profits as much as
bottom-line cost savings are desperately needed, but the
big ideas seem to be waiting in the wings for new players
to push them through. Texas Holdem, anyone? |
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Rome. It's seen it all. Long
after its own empire rose and fell the empires of modern times,
both political and commercial, still use Rome's historical
achievements as a measuring stick for their own progress
towards dominance and influence. How interesting, then, that
the Caesars of financial content congregated in Rome last week
for the
World
Financial Information Conference (WFIC), a bi-annual
production of the Software and Information Industry
Association's
Financial Information Services Division (FISD). Financial
content has seen the empires of many providers rise and fall
through the years, but at this notably upgraded event the
Visigoths of change at the gates of financial content
empires seemed to have been rumbling louder than in past times.
Yes, we still have a "big three" financial content vendors of
one kind or another dominating the scene, this year's trio
being Bloomberg, Reuters and Thomson. And yes, major investment
firms and exchanges with very familiar names remain important
players in extracting bottom-line value from financial content.
But while creating and maintaining financial content remains a
highly exacting and exact profession, it's a profession that's
adapting rapidly to a changing marketplace for both financial
content and financial products themselves.
The days of all-singing, all-dancing display terminals from
major vendors servicing rows of traders and analysts are fading
as surely as a Roman sunset over the
Forum. The financial content industry finds itself
splitting rapidly into two distinct camps required to generate
major profits: those who lubricate the lightning-fast engines
of electronic trading and those who support the development and
marketing of highly complex and sophisticated investment
vehicles for institutional and individual investors. Those left
servicing middle-of-the-road investors and traders find
themselves competing more with online services that are
increasingly adept at providing a full range of financial
information at bargain basement prices. The human factor
remains important in financial content markets but content
vendors and technologists must tailor their solutions to meet
more specialized needs for finding market liquidity and
cost-effective market analysis. In the middle of this mix
financial exchanges must search for profits through information
and trade execution services competing with pools of market
liquidity developing outside of conventional exchange markets
via sophisticated trading networks.
To meet these challenges the panelists and participants at
WFIC offered an array of paths to success in financial content
services. With strong representation from both financial
exchanges and financial content vendors the proceedings took on
a particular slant but vocal representatives from investment
firms pointed out the real needs of the marketplace. Some of
the key trends impacting these opportunities that emerged from
the conference include:
- All the world's a market, but mostly it's about our
own markets. Representatives from markets in China and
India drew a great deal of attention at the conference,
markets with exploding trade turnover and a remarkably high
level of participation by local retail-level investors. While
these markets benefit from global investors and global
sources of content, the current focus on local and regional
markets in Asia favors regional suppliers and securities
exchanges more than global providers. There are clear
opportunities for content suppliers to provide more news and
analysis of local markets and securities to make investment
in Asian markets more appealing and understandable to outside
investors. Network services providers such as Radianz will be
important service centers for meeting these regional
financial content needs.
- Market transparency challenges value propositions.
With a strong contingent from Europe at the conference the
focus of many discussions and panels centered on
MiFID, a European Union initiative to provide a common
system of price quotation on listed securities across
exchanges and off-exchange electronic trading channels that
will allow buyers and sellers to find the best prices for
executing a trade across all public channels. MiFID also
requires significant changes to post-trade reporting and
settlement business rules, aiming to create in a few short
years a transparent and efficient unified securities
marketplace that took the U.S. over two decades to develop.
This historic wringing out of market inefficiencies
accelerates the need for accurate and standardized reference
data that can help market participants to overcome the
fragmented nomenclature used to identify securities in
different markets and processing environments. But while
sorting out reference data is a crucial operational
side-effect of MiFID, its key impact is to force
exchanges and content vendors to sort out value propositions
more aligned with inherently efficient markets. In the MiFID
environment and across a more competitive global marketplace
individual exchanges find themselves having to provide a
broader array of content services to compete effectively with
content vendors and other market participants for profits
from shrinking trade margins.
- Standards, schmandards, as long as it makes money.
With so many regulatory changes in the financial markets,
including the U.S.'s
Reg NMS that promises an even stronger push towards
efficient trading, most market participants are not feeling
magnanimous about adopting anything but required standards
for information formats and delivery methods. But at the same
time any changes that can help to build up the top line of
profits along with bottom-line trading efficiency are more
than welcome in a financial marketplace that is starving for
new money-making ideas. Standards that can be shown to drive
product innovation can succeed in this environment, but the
onus is on vendors to demonstrate that value. One happy
demonstration of vendor-driven standards at WFIC was
XBRL, the
business and financial reporting format that is being picked
up by many vendors and institutions seeking more value from
corporate financial content. When vendors and financial
institutions can crawl out from underneath the burdens of
regulatory changes they'll discover that there is a
broadening environment for open standards that will help to
accelerate their next round of growth.
There was some joking at WFIC about the
Texas Holdem online poker craze being more lucrative than
financial markets, but it was humor that cut to the quick.
Looming over all of these proceedings was the recognition that
the titans of financial content are increasingly overshadowed
as innovators by those servicing broader markets for
transactions and content services. In highly regulated
financial markets it's hard at times to remember that there are
other ways of looking at content that can be both exciting and
highly profitable. Will it take an eBay buying a major exchange
or a Yahoo buying a major financial content vendor to inject
some new thinking into financial content markets? As the rubble
in the Roman Forum suggests, a lack of willingness to confront
one's own weaknesses can be as lethal as your enemy's
strengths.
-
John Blossom
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