Saturday, December 15, 2012

same dealers are behind mutiple mkt data aggregators

I spoke to a derivative market data vendor's presales. Let's just say it's a lady named AA.

A market data vendor adds value by "calibrating" raw data (quotes, i guess) collected from contributors. AA told me they are NOT purely aggregators.

Before calibration, basic data cleansing would include .... removing outliers.

--Anonymous quotes, Executable quotes and Busted trades --

Some vendors would reveal the contributor identity behind a quote, while other vendors keep their identities confidential. If citi is a dealer/market-maker on a particular instrument, then I guess citi is likely to give more authentic (probably tighter) quotes to the 2nd vendors.

In reality, for a given currency pair or major index (and derivatives thereof), the big dealers are often well known, so in the 2nd case it's not hard (according to AA) to guess who is behind an anonymous quote.

Whether the contributor/mkt-maker is identified or anonymous, you can't really trade on the quote without calling them. ECNs provide executable, tradable quotes, whereas mkt data vendors only provide informational or indicative quotes, which aren't executable. Is the difference a big deal? Probably not. As illustrated in http://bigblog.tanbin.com/2012/07/unlike-exchanges-ecns-have-only-partial.html , unlike regulated exchanges, OTC executable quotes are not truly guaranteed because trade execution happens in dealer's system not in the ECN since ECN don't have capital to hold positions. Dealer can reject an order on any "reasonable" ground. In other words, the trade is subject to dealer's approval. Either the market taker or the dealer can even cancel the trade long after execution, for example due to technical error. On the
exchange, that would be a busted trade and is always initiated and ruled by the exchange -- investors have no say.

I suppose busted trades should be clearly justifiable. They are supposed to protect the integrity of the market and maintain investor confidence. It's like public service. Therefore, they probably happen due to regulator pressure or public pressure.

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