One of the most rewarding aspects of the work I do at VendEx Solutions is that I have access to data that provides a birds-eye view of the industry and detailed information about the arsenal of tools financial services firms have at their disposal.
Recently, I had a unique opportunity to compile a full list of services, disciplines, and classifications, including industry sectors and financial asset classes, financial instruments, currencies, delivery methods, and other key dimensions of vendor solutions and capabilities. All these categories have been captured at a detailed product level, including specific services that are currently implemented. (More on why I was compiling this information soon … exciting news to come!)
Cataloging this data has been an eye-opener. What is so interesting is the sheer amount of data and technology types that have emerged in the last 10-15 years and how they have continued to grow and evolve. Some data sets have developed as a result of new instrument types or market disciplines (e.g., cryptocurrency, ESG.) Others have emerged based on the non-traditional approaches financial professionals are taking to accomplish their goals. (e.g., using non-financial data such as alternative data to analyze company risk and viability.)
New Markets, New Disciplines, New Solutions
Perhaps the most ubiquitous example of market data and technology growth to a new market discipline is ESG. The tenets of ESG have existed for some time. However, they have shifted in the last few years from something good to have to a requirement by investors and regulators alike. Looking at non-traditional, non-financial data to evaluate companies has become an increasing theme, and ESG is a prime example.
Currently, there are over 300 ESG providers, and despite consolidation in the industry, this number continues to grow. While many of these companies look at company performance in terms of the three pillars of ESG Data, Environmental, Social, and Governance, some only cover one or two. Roughly half of these providers have some type of ESG scoring capabilities, and methodologies vary widely. Negative and positive screening are also areas of concern for investors, with diverse approaches that continue to evolve and emerge.
Regulatory data and resulting compliance solutions have seen significant expansion in the last decade, particularly in Europe and the UK. There are approximately 70 capital markets regulations globally, and almost 70% of them apply to Europe and the UK. MiFID II, Basel III, STS, EMIR, and the upcoming Basel IV are complex, with statutes and requirements in the hundreds. In the US, the financial crisis of 2008 led to the creation of the CFPB and a wave of US financial regulations as well. All these regulations require solutions to manage reporting and compliance.
Cryptocurrency is another market that began in 2009 with Bitcoin; as of July 2022, there were over 20,000 cryptocurrencies. Over time, foreign exchange brokers began to accept cryptocurrencies, which increased trading and created an environment of support for fiat to crypto (traditional currency to crypto) trading. As a result, there has been a measured increase in the number of possible currency pairs and, with it, a need for data and trading support for these transactions. Providers of specialized data and technology specifically tailored to crypto include pricing and trading platforms, sentiment engines, and distributed ledger technology, have rapidly emerged.
Although Big Data has been around since the early ‘90s (arguably earlier), it has progressed considerably in the last decade. Originally the focus was on data mining of unstructured and semi-structured data and statistical analysis. Although in the financial world, the idea of Big Data has become business as usual, solutions have evolved to include spatial-temporal analysis, location-aware, sensor-based data, and others. Data Lakes and Data Warehouses have given way to Data Fabric, creating the structure to manage disparate data sources, as well as Data Mesh and the increase in dynamic self-service data catalogs.
Viewing the World through a Fresh Lens
Increasingly sophisticated technology and data management solutions, coupled with the application of non-traditional data to assess risk, viability, and other criteria, have had a pronounced effect on the emergence of new types of solutions and data sets.
Alternative data is a good example. We estimate that there are over 400 providers of alternative data solutions. They include geolocation data, website usage, online browsing, social media data, crowdsourcing, credit card data, mobile app data, shipping, and others. This data has become fundamental to investors as indicators of future performance and has become part of the fabric of their financial analysis and insights.
Artificial Intelligence is another category that has seen significant application in financial services. AI-driven innovation and machine learning have enabled more informed products and services and the ability to use more sophisticated modeling for risk and trading. Machine learning algorithms are used to automate trading and analyze large volumes of data quickly to facilitate informed products and services. It has also helped to bolster cybersecurity.
CI/CD (Continuous Integration/Continuous Deployment) as a discipline and DevOps methodology for financial services has also expanded. Rather than quarterly, monthly, or triannual software releases, this constant flow of development brings the agility of releasing solutions more rapidly to various audiences and market segments.
Market needs and technological advances have provided the ability to support a magnitude of data types and volume previously not possible, which has been largely embraced by financial firms. One thing is certain; new types of data and solutions will continue to progress and change with time, and each wave of technology will bring with it new financial market capabilities and the resultant need for new types and deliveries of market data.