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Building an alternative data ecosystem

John Walsh
John Walsh
Director of Strategy & Innovation, Refinitiv
Bob Bailey
Bob Bailey
Chief Information Architect, Enterprise Architecture, Refinitiv

The rapid growth of alternative data is creating a new set of challenges for financial markets. A Refinitiv white paper with the Open Data Institute examines how to build an open, trustworthy and sustainable alternative data ecosystem.

  1. The alternative data market is valued at around US$1 billion, with its growth in financial markets gathering pace through platforms such as BattleFin.
  2. A Refinitiv study shows that 73 percent of respondents anticipate that over the coming decade they will significantly increase integration of alternative data within their investment processes.
  3. A Refinitiv white paper with the Open Data Institute examines data privacy issues and compliance with GDPR and state-level legislation in the United States.

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Alternative data is a term increasingly being used in the finance and investment sectors. As a relatively new and changing concept, there is currently no definition that is universally agreed upon. Despite this, alternative data continues to grow in popularity with our customers.

Based on a Refinitiv study, 73 percent of respondents expect to significantly increase integration of alternative data within their investment processes over the next decade.

The market is valued at around US$1 billion (depending on your definition of alternative data) and is transitioning from being driven primarily by North American customers to a truly global market.

The alt data market us valued at around US$1 billion. Building an alternative data ecosystem

Platforms such as BattleFin — with whom Refinitiv recently announced a partnership — are assisting that growth by making it easier for customers to use alternative data alongside mainstream financial data, such as Refinitiv content.

With much uncertainty in this growing market, we have looked in more depth with the Open Data Institute (ODI) at the alternative data ecosystem.

A new dimension of data. Building an alternative data ecosystem

An alternative data ecosystem

As with many new markets, rapid growth has raised some concerns:

Sustainability: Many alternative data providers are new to selling data into financial services, meaning that their product mix and pricing offerings are still evolving.

As these companies seek to find sustainable business models in the space, a natural consequence is that there will be volatility over which providers will continue to serve financial services customers long term.

Openness: Regulators see risk in alternative data when certain sets of data may in some circumstances be considered as material non-public information (which would trigger insider trading laws).

Jurisdictional differences, a lack of established precedent around alternative data, and attempts to maintain information value through exclusivity of rights all mean that there is a tension between maintaining a level playing field and regulatory intervention.

Trustworthiness: Users of alternative data must be able to trust the data, both in regard to whether it breaks data privacy regulations and makes consumers liable for sanctions, and in regard to the accuracy and veracity of the data.

Concerns around alt data include: sustainability; openness; trustworthiness. Building an alternative data ecosystem

The EU General Data Protection Regulation is well known. In the U.S., most of the legislation has been at the state level such as the California Consumer Privacy Act, and in financial services the Gramm-Leach Bliley Act, which has been around for almost 20 years.

All of these regulations put constraints on the sharing of personal information, and most data sources now anonymize or de-identify their data prior to sharing.

However, the lack of established standards or confusion over where the boundaries of identity lie makes juggling value and compliance risky. This is especially the case in scenarios where combining individually compliant datasets can enable users to ‘de-anonymize’ individuals.

Open and trustworthy

Such concerns arise whether it’s an alternative data ecosystem or not.

The ODI has been researching how the issues might be addressed in several different industries. As a leading platform supporting mainstream financial data, Refinitiv has an interest in helping to evolve and accommodate an alternative data ecosystem.

By co-authoring this white paper, the ODI and Refinitiv bring their combined knowledge and insights to explore what it may take to build an open, trustworthy and sustainable alternative data ecosystem.

Read the report: Building an Open and Trustworthy Alt Data Ecosystem

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