Retail trading volumes have exploded in the last year driven by working from home in the pandemic. Larry Tabb of Bloomberg research estimated that retail trading accounted for 23% of US equity trading in 2021 – up from 20% in 2020, and 10.1% in 2010. This is a global phenomenon and the demand is being met with new service delivery models including no-fee trading, which in turn is impacting the need for wider access to data and a proliferation of data sources. Over 90% of participants in a recent IPSX/QuantHouse/RHL webinar indicated the recent explosion in retail trading volumes and the move for more active trading strategies was here to stay.

In response, many brokers are having to expand their offerings and improve their infrastructure to stay competitive. The Contract for Difference (CFD) market continues to grow quickly as interest from retail investors outside

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the United States creates a lift in demand for new instrument types. Clients expect their brokers to give them education around the instruments, as well as broad access to data to facilitate their trading. This drive to provide market data for consumers requires CFD brokers to interact with new data sources to deliver the service clients expect.

Getting access to the right data sources, the lifeblood of the CFD market, and putting the correct licenses in place is a complex business. Retail brokers have generally not had as much experience delivering data as their institutional counterparts and can run afoul of complicated usage requirements from a multitude of suppliers. Once signed up, ongoing management and monitoring of compliance require expertise and human resources beyond the scope of the existing headcount.

This increased demand from CFD brokers is also driving activity at the exchanges, who are constantly reviewing their licensing strategies, and moving away from flat-fee access as they see a licensing fee structure based on the workflow of brokers, rather than just distribution of market data. As these data licencing options for CFDs become more complex to understand and more sophisticated to administer, there are ever more potential pitfalls of breaching usage requirements on onward data redistribution. As we have seen, firms that break the rules, even inadvertently, can be subject to large fines and even lose access to the data, severely damaging their business models, competitive positions and reputations. This is no longer an uncommon occurrence.

CFD brokerages have choices as to where to get their data, and simplifying the complex sourcing and monitoring of these data feeds is a business imperative for this section of the market. Engaging expert subject matter data specialists, who can provide access to multiple data sources through a single platform with modern cloud-based architecture, is a core need for those brokers wanting to serve their clients with licensed information and ensure good governance. This is particularly powerful when combined with an active approach to monitoring ongoing license usage and requirements, allowing firms to mitigate any potential liabilities from exchange data misuse and essentially outsource this potentially difficult task.

Specialist firms can audit brokerages’ current data licensing agreements and optimise them from a cost and risk perspective, ultimately playing the role of a trusted advisor to firms looking to navigate complicated market data policies and fee structures.

CFDs are without doubt complex instruments but common licencing mistakes can be avoided. A combination of technological expertise in data delivery and deep experience in data licensing structures will prove a powerful tool helping the industry keep up with expanding retail demands.

Rafah Hanna is a Director, RHL