Joint BMLL and WBR survey reveals rising investment in buying-in third party data and analytics capabilities to support in-house quantitative research

BMLL and WBR Insights have published new buyside research exploring how market participants use Level 3 data and analytics in their daily trading decisions to uncover predictive signals for algorithmic performance.

The Whitepaper “Buy-side usage of Level 3 data analytics for algorithmic performance” found that high quality data has become a commonly utilised commodity by most market participants who manage their AUM quantitatively; 74 per cent of respondents said they use Level 3 data in their research program to improve alpha generation and mitigate risk.

It is clear that data and analytics play an increasingly important role in the workflows of all capital market participants. However, utilising vast data sets for alpha generation is both labour and capital intensive. Firms lack the in-house resources to manipulate the data and face prohibitive cost when looking to acquire or analyse it.

As a result, the buy-side community is responding to the availability of powerful new data sets by investing heavily in their capabilities and partnerships to drive their never-ending quest for performance and predictability. 

The research found that:

• 64 per cent of respondents said that at least 50 per cent of their investment in new data and analytics capabilities will be from buying-in these capabilities. 

• 42 per cent of respondents use Level 3 data for strategy backtesting, e.g. feature generation, alpha generation and model validation.
And of the respondents not using Level 3 data in their research programs – nearly 75 per cent said the main reason was its inaccessibility. 

• 41 per cent of respondents said that they will increase their budget allocations significantly for third-party data as a key element of their quantitative research. 

Paul Humprey, CEO of BMLL, says: “It should come as no surprise that many investment firms are looking to partner with third parties to outsource data and analytics generation. Companies that understand the benefit of partnering with a firm that can provide such data and analytics will be in the best place to leverage a more efficient quantitative trading division and generate more repeatable and scalable alpha.”

Dr Elliot Banks, CPO BMLL, adds: “The fact that 74 per cent of respondents are using Level 3 data is a clear indication of the value of this data for research purposes. Level 3 is the only data set that gives you enough information to reliably predict future market states using statistical techniques. Given where the market is going, it is unsurprising that so many firms are starting to use this level of data.”

The next 12-18 months will be critical for all firms looking to embrace data and analytics to help drive increased risk-adjusted returns, as they face increased pressures and competition from cost-effective alternatives.  It is clear that for this to happen only the Cloud can offer the critical storage and compute scalability to secure and speed up the analytical process and diversify the data stream. Over 80 per cent of respondents said they were likely to or are already embracing Cloud for their data and analytics generation and processing over the next 12-18 months. 

William L’Heveder, COO, says: “Having access to clean harmonised data is critical and when combined with a sophisticated analytics platform can not only enhance existing data infrastructures, it can offer firms a cost-effective alternative to building a comprehensive and costly data science capability in house.”

BMLL supports clients across every aspect of their quantitative market research and analysis with access to a harmonised Level 3 data lake, a data science platform, analytics feeds, and a suite of integrated visualisation tools. 

BMLL’s data and analytics are used by leading institutions across the capital markets ecosystem for alpha generation, to understand how markets behave, back-test trading strategies and to make more informed trading decisions. BMLL’s Data Feeds are pre-computed from the most granular, Level 3 order book data and provide market participants with actionable insight needed to outperform the competition. The BMLL Data Feeds cover venue analytics, trading costs, alternative pricing, pricing analytics and trading analytics.

The research, undertaken in Q4 2020, surveyed 100 Heads of Data, Chief Data Officers and Data Scientists at buy-side firms with USD10-50 billion in AUM, in EMEA and North America. 

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