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Data lies at the heart of the financial markets, providing the fuel for efficient and successful operations. Investors and financial firms with access to the best quality data – in terms of its completeness, timeliness, and accuracy – have an advantage over those less well informed.

The increasingly digitised capital markets have opened a plethora of new market data channels, which could potentially compromise data quality, control, and management across the industry unless they are well managed. Financial firms need to check the quality of this abundant market data and identify any risks and issues it poses, or risk facing operational disaster. This is a challenge as some financial instruments can generate thousands of market data points per day. In this article, GreySpark Partners, in partnership with ITRS, explores the importance of deploying a robust market data monitoring (MDM) framework.

As well as the data itself, firms must ensure the infrastructure supplying the market data is operating smoothly and without latency issues. Given the enormity of this task, monitoring of market data feeds across many different price points is by no means easy.

Historical Context

‘Open outcry’ trading was the mechanism for price discovery in most financial markets until nearly the end of the 20th century. Traders – whether trading for themselves or on behalf of clients – were physically present at a central location, publicly announcing their bids and offers. When a trader heard a bid or offer that was attractive, the trader accepted. The transaction price was then reported to the entire trading community via screens in the trading pit.

Over the past 25 years, a major transition has occurred in how market participants interact. Technological advances led to the development of a continuous electronic auction system, known as the ‘electronic order book’, which replaced the open outcry system. This change resulted in many improvements to basic functions of the capital markets. Bids and offers from buyers and sellers could be matched more rapidly and the whole process of trading was accelerated. Since then, the middle and back office has been increasingly automated to speed up post-trade processes and enable faster and more efficient front office activities. As a result, market data became almost universally digital, which laid the foundations for today’s market data visibility.

Initially, proprietary networks were the primary means by which data was distributed. However, with the wider availability and trust in internet connectivity, the use of proprietary lines to ingest market data is no longer necessary. In a further development, many banks now opt for cloud-based data solutions. Over the last 10 years, technological change has accelerated across the capital markets with traders in many of the largest firms using data-driven, high-frequency trading algorithms that are highly automated and AI-based. The platforms to facilitate this, meanwhile, present technical challenges for those tasked with monitoring price discovery and trading activities.

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