3 corner fight between Security Tokens, NASDAQ/NYSE and Regional Exchanges

“Going public” used to mean only one venue decision  – NASDAQ or NYSE? Everything else was denigrated as a “regional exchange”. In the past that tended to mean a lower valuation, as you were restricted to only local investors. Or you needed sophisticated investors using tools that could normalise valuations into a single reference currency. That […]

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Real-time market data is still not consumed via the cloud

nasdaq tower

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer – No.3 influencer in the finance sector by Refinitiv Global Social Media 2019. 

Stock Exchanges are data and software businesses. Nasdaq specifically, has had a significant software infrastructure business that provides technology solutions to over 100 organizations, like exchanges, clearinghouses, Central securities depositories, and regulators in over 50 countries.

This past week Nasdaq announced that they have partnered with AWS to offer real-time market data via the Cloud. So, why is this important in the 3rd decade of the 21st century? Wasn’t Nasdaq and other exchanges delivering market data via the cloud already?

My research released that Cloud adoption for primary market data from the source, is decent But like often is the case, the devil is in the details.

First, it seems that cloud adoption of market data directly from the source is about 2-3yrs old. Fintech Xignite always comes to my mind when I think of the early disruption in this market as a classic example of a Thomson Reuters disruptor (now Refinitiv).

Xignite – a wind intensifying the Fintech fireworks was one of my blog posts during my first quarter writing on Daily Fintech in May 2015! I am getting close to 270 blog posts as we speak.

APIs and the Cloud are the couple that `Open` up business possibilities that were not viable before. Be it in banking or in asset management and capital markets.

Only in late 2018, did Refinitiv start offering historical tick data to its clients via the Cloud in partnership with Google. They had to spend resources to convince their customers to stop deploying trucks full of tapes with the valuable historical tick data and storage rooms to process the data on the tapes. Their selling points included cost savings and efficiency gains in the Search for Alpha. See details here

Screen Shot 2020-04-27 at 10.56.11

Image from Refinitiv, October 2018

Nasdaq has been offering historical market data of all sorts much earlier always in collaboration with AWS. Their collaborations started in 2008 with certain data-on-demand offerings! Since then, they have also collaborated with Xignite for certain on-demand data sets (as early as 2011 see here).

Their recent cloud offering, the Nasdaq Cloud Data Service (NCDS), is bringing real-time data (not delayed or historical) via the cloud. It starts with real-time data for Nasdaq TotalViewNasdaq BasicNasdaq Last SaleNasdaq Global Index Data Service (GIDS) and Nasdaq Fund Network.

One would think that real-time data via the cloud would only benefit HFT trading businesses that profit from latencies in market data. But that is not actually the case. There are several benefits to access real-time data via cloud beyond the obvious cost optimization (reduction in costs and paying for what you consume). These include real-time risk management and search for alpha, as there is not `hoping on and off` the cloud between all the departments that collaborate to monitor portfolios and the markets. Traders, middle office, and back office, can attain real-time sync with real-time access via the cloud and into the variety of applications each one of them uses.

To make this simple and clear: A trader usually has access to real-time market data (if not via the cloud, then he-she is overpaying because no one uses all the data since a trader will be focused in one area or instrument). The middle, back office and risk management do not have access to real-time data and therefore, they run their dozens of applications out of sync.

This market is clearly behind.

A recent report by Xignite and Greenwich Associates quantifies the market appetite for market data feeds via the cloud.

Screen Shot 2020-04-27 at 11.18.45

The survey shows that the market for accessing market data via cloud is ripe. However, the misconception that real-time data is not so suitable for the Cloud and for those trading (but not HFT) has not been overcome. The way I see this evolving is through realizing the benefits of Stream processing. Technologies that allow us to compute directly on data, are here and their adoption will unlock more benefits and value.

The CME Group, the global leader in derivatives market, became the first derivatives marketplace to offer real-time futures and options market data on Google Cloud Platform just this past November. Stay tuned.

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Are Stock exchanges fast and efficient?

financial-markets

The Austrian school of economics view is that

Stock Exchanges are the fastest and most efficient data-processing large scale system that we humans have designed so far.

Stock exchanges need roughly 15minutes of trade to determine the effect of a piece of news – political, scientific, ecological, societal etc – on the prices of shares.

Whether this will change with DLT technology and when is up in the air. For now, we have old and powerful institutions running these data-processing systems and it won’t be easy to take steal their Cheese.

The Frankfurt Stock Exchange is over 400 yrs old with a market cap putting it in the 10th position globally[1]. The London Stock Exchange (LSE) and the New York Stock Exchange (NYSE) are both over 200yrs old and are in the 3rd and 1st respectively by market cap. Just a few blocks away from the front runner, there is NASDAQ only 45yrs old and with a 2nd ranking in market cap.

The 29yr old Australian Securities Xchange (ASX) ranking 14th in size, is actually the bravest in that they were the first to explore DLT technology for their settlement and post-trade activities. Digital Asset has been their partner, with whom they have been designing a replacement of their Clearing system CHESS since 2015, which they actually own (not the case for other stock exchanges). The full launch has been pushed out again from 2020 to 2021.

The architecture of this system maintains the messaging-based interaction with its participants and does not require them to have to run a node on the network in order to participate.

“We are often told by many, including other market infrastructures, ‘You’re so brave that you’re going first, you’re using DLT’ — we actually genuinely consider it brave to embark upon a large transformation program and not adopt this technology,” said Cliff Richards[2] ASX`s executive general manager of Equity Post-Trade Services.

NASDAQ is the most active stock exchange by being involved in several different DLT initiatives that are, however, recent.  In Spring 2016, in a post about Fintech in action on Western stock exchanges, I had mentioned Linq, a private blockchain company focused on private securities issuance. Linq allowed unlisted private companies to represent their share ownership digitally and securely. Later, Linq and Chain[3], a blockchain services provider, used DLT to register digitally ownership of private shares.

In May 2017, Nasdaq partnered with CitiConnect for Blockchain and took Linq to the next level. They went through a seamless end-to-end transactional process for private company securities.  Payment and reconciliation magic via DLT.

In October 2018, NASDAQ also partnered with the Azure blockchain service of Microsoft[4]. The aim is to integrate it in order to improve buyer-seller matching, management of delivery and payment. The key advantage they present is that this deployment will allow for interoperability with customers using various blockchains.

What really caught my attention is the Nasdaq`s use of DLT technology in their newswire services. They are starting to use smart contracts for time-sensitive data like corporate announcements, press releases, regulatory filings, etc and the associated valuable meta-data. Nasdaq seems to have filed for a patent around this  – Nasdaq Gets Patent for Blockchain Newswire to Solve Gaps in Audit Trail Gaps and Errors[5]!

For me, this latest use case can be big. Distributing meta-data through smart contracts and giving access to it on a pay-as-you-go basis, will be a huge business in financial markets and Nasdaq can dominate in this. If this then gets integrated into their market analytics business, then bingo.

[1] Data source from the Visual Capitalist as of April 2017 – Comparing the largest Stock exchanges

[2]Here’s what to expect from ASX’s blockchain-based CHESS replacement

[3] Chain was acquired by Stellar in Sep 2018

[4] Microsoft to Integrate Blockchain Offering Into Nasdaq Services Following New Partnership

[5] Nasdaq Wins Patent for Blockchain-Based Newswire Service

Efi Pylarinou is the founder of Efi Pylarinou Advisory and a Fintech/Blockchain influencer. 

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