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How much can Netflix tell us about the future of index data?

By: Jonathan Worrall, CEO, data solutions, FTSE Russell

A lot, actually. Allow me to explain.

A mind-blowing level of data is available at everyone’s fingertips, and yet at FTSE Russell, we believe we have just scratched the surface of what’s possible. To understand how the paradigm for market information will change, look no further than Netflix, whose evolution offers a parallel glimpse into the future for index providers.

When Netflix launched in 1997, the company was in the business of delivering third-party content. At first, customers received DVDs through the mail, but with the advent of streaming media the experience shifted from customers receiving static content to a model where customers could customize their experience and make selections. Now, Netflix has begun to develop its own content, and customers have robust functionality for on-demand content streaming and a variety of tools to sort, select and manage their personal preferences across a vast amount of content. It has become a highly evolved and a much more robust user experience.

The world of market data has experienced a similar evolution. As recently as the early 2000s, the delivery of financial information to market participants has moved from hard copy tomes sent via mail, through emailed pdf files, to real-time data delivered over the internet. This has opened up a world of new possibilities for viewing market data and performing analytics, all of which can help inform market participants’ index choices.

Over the next several years, market data will again hit an exciting new stage in its evolution.

First let’s consider how data is sourced today. Index providers apply methodology to third-party data – long the standard across the financial industry – to produce indexes. But the significant increase in demand for passive products and a desire to reduce costs has encouraged an evaluation of the entire product manufacturing chain. With over $6 trillion[1] currently committed to passive instruments, we expect to see index methodology in the sourcing of data, providing unprecedented transparency into a company’s performance.

Data products and their delivery are also evolving. The change underway is from a “push” model – where data solutions are pushed to a client – to a full engagement model where clients can access a massive amount of data anywhere, anytime and customize their data feed to their specific wants and needs). But as the data set grows, so too does the need to provide tools that help clients manage, sort and analyze it.

Perhaps the most revolutionary change will be the move toward using artificial intelligence (“AI”) to aid in the analysis of massive amounts of data. This phenomenon sweeping across industries is described succinctly by authors Viktor Mayer-Schonberger and Kenneth Cukier in their book Big Data [2]: “big data refers to things one can do at a large scale that cannot be done at a smaller one, to extract new insights or create new forms of value, in ways that change markets, organizations, the relationship between citizens and governments, and more.” In the financial world, this will manifest itself in an ability to capture data that previously was unattainable. By applying new tools in the future, we can use AI to learn things from the data that we can’t understand today.

As we look toward the next several years, our ability to capture, analyze and glean insights from enormous amounts of data will transform how market data, information and content is sourced and shared.

In fact, I suggest that the future of market data may eventually look closer to an Amazon experience than a current Netflix experience, particularly in the detailed way Amazon aims to anticipate each customer’s individual interests by generating suggestions and customizing the online experience according to the customer’s long term browsing and buying record. As we build our market delivery data systems in smarter and smarter ways into the future, the data experience will be very much client-directed and customized to the individual. What you will see on your screen will be personal to your needs, and “smarter” data delivery systems will begin to anticipate what you might need based on your investing behavior. And that will be beneficial for everyone..

 

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[1] https://www.moodys.com/research/Moodys-Passive-investing-to-overtake-act...

[2] Big Data: A Revolution that Will Transform how We Live, Work, and Think by Viktor Mayer-Schonberger and Kenneth Cukier, Houghton Mifflin Harcourt, 2013

  

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