By Mike Cahill, CEO of Douro Labs and contributor to Pyth Network
The critical infrastructure that powers our global markets is long overdue for an update. While market data functions as the electricity of our financial system, today, faulty wires transporting this critical resource are holding back innovation in the global economy. The rest of the world has gone digital, yet this important function of capital markets has somehow stayed analog.
Why have incumbents not adapted to today’s technology? Simply put, legacy incumbent infrastructure was built with pre-internet technology and cannot support the post-internet needs of global markets.
Why This Matters: What Institutions Stand to Lose
Today, fragmentation bars exchanges from seeing beyond their own order books—forcing them to only view small slices of a vast global market. Additionally, vendors are incentivized to repackage these partial feeds and sell them back to exchanges at a premium, meaning the firms that produce the most accurate, high-frequency data only see a fraction of the revenue that these feeds generate.
At the same time, with just a few providers offering market data, the cost of accessing the most accurate, real-time information is often opaque and discriminatory, with recent research revealing that the rising cost of market data is rapidly outpacing budgets in a way that is wholly unsustainable for institutional spend.
As the cost of market data continues to rise, institutions face margin compression and lose flexibility when it comes to capital allocation. Unsustainable market data costs also make it particularly difficult for new firms to emerge, which dulls the competitive landscape, squashes diversity, and makes the entire financial industry less resilient.
The root of the problem lies in the fact that the entire market data economy is built on faulty wires. Institutions cannot ignore the reality that market data powers every trade, valuation, and risk model. It’s not merely discretionary; it’s essential to profitability and growth.
The Path Forward: Building a Model for Digitized Global Markets
If current market data infrastructure could evolve to meet the needs of contemporary institutions, it would result in sweeping benefits. A next-gen system for financial data infrastructure flips the old model on its head, capturing data upstream, directly from the trading firms, exchanges, and banks themselves—as opposed to depending on downstream aggregators.
Fuller market coverage could drive cross-asset and cross-geography data that enhances risk management, trading, and research and development. A transparent access model with lower cost barriers could help alleviate pressure from institutional budgets and free up spend for new growth efforts. The new model would also break down barriers to entry, broadening participation while encouraging new upstarts and innovators.
Most critically, the incentives of the system participants would be wholly aligned: data publishers would be rewarded for their accuracy while data consumers would be able to access the purest data at an affordable price.
Today, the stakes are clear: If real-time, accurate, pure market data remains locked in a model that only delivers partial coverage at ever-increasing costs to enter, institutions will not be well equipped to evolve at the pace of the rest of our society and industries. A new model must emerge—one that’s designed to fuel the next wave of innovation and built to create a more innovative, inclusive, and resilient financial sector.
