Financial Institution_Market Data Cost Allocation

Burak S. Arikan | 382 Webster Avenue, Jersey City NJ | +1 (201) 356-7058 | burak@burakarikan.com
Market Data Cost Allocation
Business Unit/Client Cost
Market Data Per Security Cost Allocation
Burak S. Arikan
May 2016

High Level Design
Market Data
Vendors
Market Data
Applications
Business
Applications
App 1
App 2
APP 3
App 4
Trade App
Accounting
Compliance
Reconcile
EUC
(User Applications)
1
2
3
1
Current State
Market Data Cost Management Engine (MDCME)
Market Data Vendor Billing/Usage Data:
- Invoices
- Security request files
- Market Data Vendor output files
- Market Data Vendor verification reports
File/Business Linkage Data *
File/Business Linkage Data *
Usage
File Business
Linkage
Usage Verification
Linkage Management
Cost Allocation
Linkage Maintenance
Missing Linkage Alerts !
Reporting
1
* Each information return file from Market Data Vendor should be linked to business/client
I
I
II
II
Implementation
Priority:
The new solution to allocate cost to business units will be based on actual DATA USAGE.
Data
Vendor

Obtain Market Data Vendor
verification reports
Linkage Management
Market Data Vendor Company Side
Load Market Data Vendor
Usage Date Into MDCME*
Obtain all request files submitted
to Market Data Vendor
Load request and file
owner info into MDCME*
Financial Institution Side
File Cost Calculation
Usage Verification Reports
Data Analysis and Reports
Optimization Opportunities
Calculate unit cost per
security/data type
Calculate Market Data
Cost per File
Investigate and identify
the ownership of each file
Missing File/Business Link
Load/Update ownership
info in MDCME*
Business/ Client
Cost Allocation
Allocate file costs to
businesses or clients
Data based Optimization
Audit
MDCME: Market Data Cost Management Engine
Data
Vendor
High Level Process Flow

Solution Principles
3
The key principle is to charge market data cost based on USAGE rather than static outdated percentages.
• Charges to business units/clients should be based on usage (dynamic)
• Solutions should be practical with a reasonable cost accuracy
• Solution should not impact the performance of internal market data management applications
• Existing market data vendor capabilities should be used to reduce/eliminate FI technology development
• FI technology development should be minimal
• Cost allocations should be performed at the most granular level (security/market data type)
• Cost allocation should be performed as close as possible to the cost accrual location
• The end product needs a proper server environment to aggregate files due to file size.
Principles:
• All vendors sourcing on-demand market data will source information to link invoices to data licenses to request files to security
identifiers. (This is assumption based on Market Data Vendor feasibility proven)
• Business, data management and EUC applications will be able to link each file being sent to Market Data Vendor to a single business unit /
client
• Internal market data distribution systems will support the effort and deliver data needed as requested.
• Internal systems uses static file names that are requested from Market Data Vendor (The file names do not change from day-to-day)
• Each file submitted to on-demand vendor services will be linked to a single business unit, or client
Assumptions:

Cost Management Engine Functions
Core components of a long term cost management should ensure the charges aligns with requests, are activity based, and tooled
with proper alerting for missing information and management reporting.
Cost Allocation:
The purpose of this functionality to assigning cost to each file requested during the previous month. This cost allocation is built based on unit
cost and usage.
- Assign unit cost to each security (exchange level), request type (initial, MultiBO, etc.), billable product
- Calculate file cost based on the securities included in Market Data Vendor return files*
- Determine the business unit/client cost based on the files linked to business unit/client
- Apply the Cap/Floor to each invoice based on over all usage rather than unit cost.
* Market Data Vendor return files determine the charges, not submitted request files
4
File/Business Linkage Management:
The purpose of this functionality to ensure that each file is assigned to a single business unit/client.
- Build the list of the files being charged by Market Data Vendor
- Compare the list of files against the file/business linkage tables
- Alert operations if new files are included in the list of files having no business unit/client assigned
- Give ability to operational users to change file/business relationship
- Store the historical relationship information
Usage Verification:
The purpose of this functionality to ensure that Market Data Vendor return files are actually aligned with the request files submitted.
- Check to ensure that all securities being charged by Market Data Vendor are requested in request files
- Check to ensure that all data attribute categories being charged by Market Data Vendor are requested
- Compare the request and return files to detect possible issues among request file security universes (e.g. requested 43,000 securities, but
Market Data Vendor charged for 5,000 which indicates that there might be a problem with request based on return rate)
- Alert if there is a big delta among request files and Market Data Vendor return files

Burak S. Arikan | 382 Webster Avenue, Jersey City NJ | +1 (201) 356-7058 | burak@burakarikan.com 5
Core components of a long term cost management should ensure the charges aligns with requests, are activity based, and tooled
with proper alerting for missing information and management reporting.
Reporting:
The purpose of this functionality to create management and operation reports for effective decision making.
- Report the list of file names per each business unit/client
- Report the list of new files for the month
- Report the list of files whose ownership has changed that month
- Report the list of files per each Market Data Vendor account
- Report the list of each business unit/client per each Market Data Vendor account
- Report the list of securities requested and returned per each file / month
- Report the file cost historically
Cost Management Engine Functions

In order to design and implement a solution the following key principles and assumptions are utilized.
Market VendorsMarket Data
Applications
Business
Applications
App 1
App 2
App 3
App 4
Trade App
Accounting
Compliance
Reconciliation
EUC
(User Applications)
1
2
3
1
1 Requests from the business application go to the Vendor through Market Data Applications
2 Requests from the business application go directly to the Vendor
3 Requests are initiated by an End User Computing (EUC) applications directly to the Vendor
• Data requests are initiated
by wide range of
systems/users
• Data requests follow
different paths (1,2,3)
• Market Data Vendor charges
based on the information
returned, not requested
Facts:
Solution Approach:
• Capture cost as close as
possible to the source of
charges
• Establish an ability to
capture information on all
requests to Market Data
Vendor and responses from
the Market Data Vendor to
link request to return
• Establish an ability to link the
files to owners to Business
Units
• Create reporting capabilities
to make effective decisions
Data
Vendor
Current State

Appendix
Problem Statement & Current State

Market data is obtained on-demand requests and bulk files downloads. Each of these methods has different cost structure that
needs to be solutioned individual and then aggregated at business unit / client level to construct the total cost.
Problem Statement:
Market data cost allocation to each business unit is performed based on legacy allocation percentages determined by users or static usage
data. This problem can be divided into two categories/problems based on the method to obtain data/accrue cost.
On Demand Request Market Data Cost: Market data requests are submitted to vendors, like Bloomberg, Telekurs, and IDC, to obtain the
most recent market (price, security reference, corporate action) data for interested securities and data attributes. Based on the analysis
performed on Market Data on-demand service ( Per Security) pointed out that the cost allocation to business units are static while vendor
charges accrue based on security, data category type, and validity of the response.
Bulk File Market Data Cost: Daily bulk files are received from market data vendors to load into internal market data application to be delivered
to various internal application. The cost of market data usage is actually at fixed price per vendor. The unit cost to business units does not
decrease by increased usage, although it is the case.
Due to the nature of the services and cost structure, solutions to correctly allocate cost will differ, but at the end the cost allocation from each
data consumption method will be combined at business unit / client level to calculate the total market data cost.
Sub Problem Statement – 1:
Sub Problem Statement – 2:
Solution Approach:
Solution for Problem – 1 Solution for Problem – 2+ = Total Cost Per Business Unit
Problem Statement

Market data cost accrued with vendors are allocated to business units based on static allocation percentages that do not reflect
the usage.
Market Data Vendor Per Security –On Demand - Market Data Current Cost Allocation
Market Data Vendor Per Security Market data charges are actually charged to business based on outdated static allocation percentages.
Market Data – Bulk Data File - Current Cost Allocation
Business
Assumed Security
Number
Cost
Allocation %
Portfolio Accounting Ops 26,028 15.65
Fund Accounting Ops ‐ ASIA 39,247 23.59
Fund Accounting Ops ‐ NAM 12,507 7.52
Compliance Monitoring ‐ ASIA 66,967 40.26
Trade Processing – NAM 407 0.24
Reconciliation – Global 3,170 1.91
Reconcilation ‐ EMEA 24 0.01
Asset Servicing – NAM 4,657 2.80
Misc 78 0.05
Transfer Agency ‐ EMEA 13,264 7.97
Investigations pointed out that a business unit is actually
requesting 43,800 securities from Market Data Vendor Per
Security. The current static cost allocation to that business unit is
reflecting the number to be 66,967 which 50% overstated.
Investigations pointed out that a business unit is actually
requesting 11,723 securities from Market Data Vendor Per
Security for Reconcilation. The current static cost allocation is
reflecting the number to be 3,170 which 73% understated.
Investigations pointed out that there are more applications using
Market Data Vendor Per Security which are not listed at all.
The cost allocation percentages for bulk data files only reflect cost for two business units based on the agreed allocation in the past. However, the bulk
data file is also being used by other businesses through FI Market Data Applications without any cost allocation to that business unit.
Static Allocation Table
Problem Statement Illustration

Financial Institution_Market Data Cost Allocation

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