Profit & Loss: ICE has made significant investments in its market data business in recent years, with the purchase of SuperDerivatives and Interactive Data. Why is ICE investing so heavily in market data services and how do these acquisitions fit in to the exchange’s overall growth strategy?
Lynn Martin: We see customers requiring more data to inform their trading decisions, and increasingly, their capital allocation decisions. We are investing in and harnessing our data services to offer more value-added information that customers can easily consume to make more educated risk management decisions and to comply with regulatory requirements.
There are many secular growth trends driving the increased demand for data: regulation, market fragmentation, the need for independent valuations, the growth of indexation, passive investing and ETFs, the trend toward more automation in the fixed income markets and the development of new services and platforms. Further, our goal is to have greater diversification of our revenue base from the pure transaction-based businesses to a subscription model.
P&L: Jeffrey Sprecher mentioned at FIA Boca that more than 30% of ICE’s revenue now comes from market data. Do you expect this figure to grow?
LM: In the fourth quarter of 2015, data comprised nearly 30% of revenue, and on a pro-forma basis (including acquisitions as if they had been part of ICE for the full quarter), it would have been 43% of revenues. ICE’s core market data business currently spans virtually all asset classes including globally 11 exchanges and six clearing houses. ICE also offers benchmark and valuation services for fixed income securities, Libor, exchange traded funds, a range of financial derivatives, and clearing house positions.
P&L: Sprecher also mentioned that the commoditisation of matching on exchanges is serving to underline the data segment’s status as “high value business”. Is there any chance that commoditisation will eventually make data provision less profitable too?
LM: Much of the data we provide is proprietary or the result of value-added analysis. In terms of data connectivity, we’ve made investments in infrastructure to have a leading solution amid a time of increasing demand for capacity, security and resiliency.
P&L: How do you plan to grow your market data business? Will you look for further acquisitions or focus on organic growth? Are you primarily trying to bring on new customers or penetrate your existing client base?
LM: We’ve evolved our business model to stay close to our customers’ changing needs, which are reflected in the secular trends noted above, including increased automation, market fragmentation, requirements of independent data, increased demand for connectivity, regulatory reporting and capital efficiency to name a few. ICE also offers benchmark and valuation services for Libor, exchange traded funds, a range of financial derivatives, and for clearing house positions. Our customers rely on data, trading and risk management platforms, which are often interdependent across their workflow. And when these services are well coordinated, they create a strong value proposition.
P&L: Is the way that financial professionals want to access and consume data changing? If so, how?
LM: As always, technology has a part to play in this. The increased use of technology is creating additional demand for data inputs, including the connectivity to consume this information. In addition, customers want their data to be ‘smart’ – in other words, they want their data to give them insights that lead to optimal investment and capital allocation decisions.
P&L: There’s a lot of buzz about FinTech right now and some of these firms are targeting the market data business, seeking to provide on-demand data via cloud solutions. Do you think that these firms have the potential to disrupt the market data business and change the competitive landscape at all?
LM: Data is a very dynamic space due to the convergence of regulation, technology and secular trends. There is likely a great deal of innovation ahead, both by current and new participants as a result.