IPR6 Weighing the Scales Data Licence Management v Mismanagement
Hearts, Obligations & Addictions.
As we keep saying Intellectual Property Rights (IPRs) lies at the beating digital heart of the entire data industry. All, with the exception of the original source owners ‘borrow’ (i.e. Licence) market data for business purposes based upon agreed (though some would argue imposed) usage as defined by the contract in place which should outline the rights to use and obligations of the licensee.
Market Data flow and usage is experiencing exponential growth in multi-directional ways. Like a virus, first use divides in two (well even more in the case of market data), then sub-divides and so on ad infinitum.
This is partly driven by the move to more integrated through connectivity but paradoxically fragmented distribution environments both internally and externally. Now the ‘Cloud’ is bringing even more connectivity in omni-directional ways. What was licence management in a shower is fast upgrading to licence management in a storm.
And within, and without, all this, the subscribing Bank needs to ‘Control, Monitor, Report’ all its usage according to its licences, and woe betide the financial institution when it is caught out. Though some Banks have refined stalling an audit to where it has become an art.
Licence Management, Risk & Compliance
This means the main consumers of market data, the vendors and the financial institutions must invest in effective market data licence management to ensure:
- Compliance with agreements in place to minimise risk.
- Maximise usage rights to benefit the business.
In the real-world licence management is rarely done well, and to be fair faults can be found with all parties in the market data licence flow.
The Licence Flow
Flowing water follows the path of least resistance. The market data licence flow is seemingly designed to find the toughest rocks it possibly can in front of it.
The data licence flow (perhaps chain would be more appropriate) does not necessarily follow the same route from source to consumer as the data, as can be seen from the diagram below.
There is a series of inter-connected relationships and dependencies that need to be understood and mapped. For instance, vendors will not switch on access to a feed until approval has been obtained from an exchange, who in turn will not grant permission for release until a contract is in place.
Also, some exchanges like to bill clients directly, while others prefer to out-source billing to the vendors.
Understanding the relationships between exchanges, distributors, and end users means financial institutions need to follow and track the licence flow as much as they do the actual data distribution flow.
Licensing Market Data is Big Business
Once vendor distribution and terminal access fees were the primary/only sources of market data revenue for exchanges. Outside the major markets, this is still the case for many exchanges. Over the last 20 years this has shifted remorselessly towards the licensing of market data. The exchanges like all other data sources are seeking to exploit this gravy train even further.
Why? Exchanges are under fee pressure in their traditional dollar earning transaction and IPO offerings, so they are becoming increasingly addicted to market data as a stable source of a growing, high margin revenue. Please MDG Report on Exchange Revenues.
Exchanges are also taking advantage of the increased complexity by:
If even the largest financial institutions and vendors are often not up to the task of managing their licences because of complexity in terms of technical control, availability of resources and administration, then their smaller brethren have even greater problems.
As smaller banks grow, along with facilitators such as ISVs who provide third party market data services and products to financial institutions, they are progressively coming into direct contact with the exchanges as they in turn enlarge their net.
When it comes to licence management most are firstly ill-prepared to manage the new licensing environment and secondly unware of the costs of mismanaging the new licensing environment.
Practical Licence Management & Issues
Dealing with data sources and exchange licences requires the efficient use of resources combined with a blend of experience, expertise, and patience.
Case Study. In one project to review and implement a client licence regime, it took in excess 6 months to put in place just over 30 licences with exchanges and data sources. Here are just 7 of the issues we faced during the project.
It is an imperative to understand the licence matrix effect. Unlike the diagram below it is not 2D but a 3D web of criss-crossing users, data usage and distribution.
Poor licence management results in unnecessary cost, potential multi-million dollar liabilities and has a negative impact on the business to utilise a key resource, information, effectively.