Facilitators:
Michael Kreutzjans, Executive Vice President, Chief Strategy Officer, HyperFeed Technologies, Inc.
Tee Williams, Principal, R. Shriver Associates
Peter Esler, Managing Director, Market Data Services, Bear Stearns & Company
Moderator: Michael Atkin, FISD

• Causes of disintermediation - the second wave of cost containment
• The value of direct customers/supplier relationships
• Dealing with the barriers to disintermediation (symbology, display and analytics, delivery and customer support, administration and intellectual property rights, implementation risk, data consistency)
• Impact of disintermediation on exchanges, content originators, integrated vendors, end users
• The story of standards and interface development

Disintermediation Roundtable

Concept of Disintermediation (What is it?)

Question: The concept of disintermediation – i.e. removing the middleman and giving the consumer direct access to information that would otherwise require a “mediator” – has been and active topic in the information industry for quite a few years. In a general sense, what does disintermediation mean in the context of the financial information business?

Drivers of Disintermediation

Question: Why are we talking about disintermediation – what’s propelling this discussion forward? I’d like to talk about:

• Disaffection in the market data business (what are firms disaffected with?)
   
• The ongoing requirements for cost containment (Is this part of a normal business cycle that will go away once the cycle improves or is there something more structural at work? Who loses?)
   
• The benefits of a direct customer/supplier relationship (Why is a direct relationship between suppliers and customers better than the traditional vendor relationship?)
   
• The importance of product choice (Will disintermediation change the nature of product offerings to customers (i.e. richer/deeper data from specialists, unbundled product offerings, more robust/useful data from suppliers)

Enablers of Disintermediation

Question: What’s different today that makes disintermediation possible? Another way of looking at it is – what’s required to facilitate or enable market data disintermediation? I want to talk about Tee’s four horsemen of the market data apocalypse:

• Technology – What’s the impact of cheap hardware and reduced technological barriers to entry? How does technology affect the economics of market data?
   
• Standards – What is the role of standards in promoting disintermediation? Let’s focus on the requirements of standard data definitions (MDDL), standards for distribution (web services) and standards for authentication (entitlement).
   
• Market Fragmentation – How will disintermediation address the frustration stemming from the requirement to buy everything in order to get something of value? Will disintermediation promote product unbundling? What will this do to the economics of market data?
   
• Service Commoditization –Is there any content that is considered “fundamental” and not easily substituted? Is pricing data a commodity? Is news a commodity?

Implications of Disintermediation

Question: What is the impact of disintermediation on the various market data industry segments? In other words, who wins, who loses, what gets reformed, what gets eliminated? I believe this question is ultimately about the nature of added value. I’d like to approach this subject from both the “segment” perspective and the “functional” perspective.

• Vendors – Does elimination of the barriers of entry mean that the traditional market data model (collect, process, store, distribute, integrate) will be gone forever? What does this mean for the economics of the market data business?
   
• Exchanges – What are the implications of disintermediation to exchanges and other information providers? Are exchanges now in the market data vending business? Are the recent experiments with direct access via the web an early indication of things to come? What does disintermediation mean to the value of the data generated by exchanges – i.e. does this put pressure on the exchanges to improve the quality of their data offerings?
   
• Users – Will disintermediation be nirvana, purgatory or hell to user firms? What will disintermediation do to the cost of market data? Will the recent scrutiny over soft dollar arrangements help propel cost containment even higher on the priority list of user firms? Will users want to trade cost savings for data integration/reliability/sourcing headaches?

Barriers to Disintermediation

1. Symbology – users are wedded to a particular vendor symbology – it’s the most important barrier to substitution. Content is a commodity, symbology is the only significant differentiator – customers buy symbology, not data.
    
2. Displays/Analytics – is loyalty to a vendor display and analytics applications a barrier to substitution?
    
3. Data Sourcing –Some content is considered fundamental and not easily substituted – is there essential content from one particular vendor? Is the cost and hassle of contracting with multiple exchanges still a barrier to entry?
    
4. Environment – how important are pre/post sales support, field service, help desks, reliability of delivery, security of networks? Reliability matters most – saving money is one thing, having your market data feed go down is career limiting.
    
5. Implementation Risk – How important is minimizing risks in the disintermediation equation. Is cost containment a stronger motivator than risk minimization?

Conclusions

I’d like each of you to think about a three minute conclusion.