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User Committee Enterprise License Outline

July 9, 1997

Objective

The goal of the FISD User Committee is to outline user requirements, objectives, and priorities related to enterprise licenses as the basis for open discussion among the FISD membership. Enterprise-wide pricing models have been actively discussed within the financial industry for some time. The difference stems from the fact that datafeed/network access delivery has become the dominant means of disseminating market data. As a result, firms have assumed more control over information delivery as well as accountability over usage reporting.

The purpose of this paper is to assemble user perspectives on the benefits and drawbacks of enterprise licenses and to initiate an open dialogue on the issues which industry participants will need to address as a result. This paper is not intended to be prescriptive, nor does it necessarily reflect the individual views of any particular user firm.

Overview

Enterprise pricing models seem like a good idea in concept although there is only a limited base of experience to draw from in terms of understanding the value, problems and operational challenges associated with its implementation.

One thing is clear based on discussions up until this point, information providers will not embrace an enterprise model that reduces their revenues, nor are users likely to buy into a process which doesn't result in some form of cost savings. Therefore, the value of an enterprise license, at the most basic level, must either deal with the issues related to the frequency and complexity of the reporting, billing, reconciliation process (i.e. reduce administrative burden); promote flexibility in terms of usage (i.e. lower the per unit cost of market data), or simplify payment processing (i.e. cashflow alternative based on some underlying metric).

A strong case is likely to be made for enterprise licenses based on administrative savings alone. Virtually everyone agrees that the industry would benefit from alternatives to hiring more audit staff, implementing additional administrative technologies, reconciling uncoordinated monthly reports on a global basis, managing complex contractual restrictions and dealing with the administrative headaches of managing partial payments on a monthly basis. The costs associated with the monthly add/change/delete process and billing reconciliation on a global basis across multiple vendors are significant.

Equally important is the task of achieving uniform definitions and common formulas for the units of count. Exchanges are clear in their requirement that an enterprise license must be based on some consistent and auditable metric that can be counted and applied on an equal basis within the industry. Data providers need assurance that the subscriber has the ability to control, and be accountable for, the use of data. As such, the range of potential units of count are somewhat limited and are likely to be based on either: people (i.e. personnel roster, registered reps, etc.), terminals/user ID, transactions (i.e. trading volume), metered access (i.e. per quote, connect time, or some other "packaged unit"), or applications (i.e. pricing models based on usage type).

Part of the complexity of this issue relates to the fact that organizations are not uniform and that there is not one model likely to work for all providers and users. Exchanges with wide coverage have different requirements than exchanges looking to develop market share. Some exchange embrace the notion that wider dissemination promotes trading, while others believe that market data is demand inelastic. Some firms are looking primarily to control costs and have implemented refined and effective internal monitoring and charge-back methodologies. Other firms are looking for wider global dissemination and greater leverage/flexibility in the use of data.

The User Wish List

The FISD User Committee has identified the following as important components of an enterprise license. In other words, here's what larger user firms say they want:

Global license covering the entire scope of the business entity -- most large, full service, user firms operate global distribution networks and seek an enterprise license that will cover distribution to all business centers on a global basis. User firms suggest that the definition of "the firm" include business centers, divisions, operating groups, and entities with ownership by the parent organization of 50% or greater.
A license based only on the number of terminals/user ID's that have access to specific data -- Of all the models discussed, the large user firms universally want an enterprise license based on either terminals or user ID. In addition, they want it to be based on their actual use of market data from any individual data supplier. Accounting metrics based on people (particularly Registered Reps) does not translate well on a global basis and don't necessarily reflect the differences between Registered Reps (i.e. anyone who passes the exam) and Performance Registered Reps (i.e. engaged in revenue activities).

Clearly, the implementation of control systems and inventory management technologies are required to track usage and identify information sources at the individual device level. It's also true that not all firms have an automated and centralized control environment in place on a global basis (although many do have control technologies in place on a regional basis). The ability (or requirement) to technically account for market data usage on a global basis is a real issue which needs to be addressed by the industry if progress is to be made on the development of a workable enterprise license model.
Elimination of multiple access fees and double billing -- exchanges and user firms have agreed that the elimination of multiple access fees and double billing is a reasonable area to be addressed. Users conclude that the establishment of a direct billing and reporting relationship, (among the larger firms that would be eligible for enterprise license arrangements), would be a pre-requisite to achieving that objective. Without a direct billing and reporting relationship, the only way to address the issue would be for users to generate a report which identifies where duplications exist. And while that would be possible, it would result in a significant and complex administrative burden for both users and exchanges. User firms suggest the establishment of a direct billing and reporting relationship with exchanges as an initial and immediate action step within the industry.
Control over distribution and the ability to employ multiple platforms including private network intranets (without pre-approval) -- firms want to eliminate the pre-approval requirements related to market data dissemination to be able to take full advantage of all distribution platforms -- including the Internet. They also note that delivery mechanisms are becoming more advanced and that firms want the flexibility to adopt to new delivery mechanisms as appropriate. In addition, some firms object to exchanges "micro-managing" their business operations, determining what the business centers do with information, or approving of their internal charge back methodologies.
Reduction of the administrative burden associated with monthly accounting and reporting -- much of the administration burden associated with market data relates to the problem of reconciling uncoordinated monthly bills from multiple suppliers on a global basis. Users believe that the industry should be able to cut through that process and eliminate the need to count down to artificial and finite levels twelve times per year. Users maintain that even with an enterprise license, they will continue to maintain an accurate desk level accounting of usage for internal control/cost containment requirements. Firms maintain that they need to maintain controls and counts in order to determine the basis of the enterprise license and for renegotiation of the license in subsequent years.
Annual renewal cycle with the ability to revert to other models (or revert back to per report) as appropriate -- firms suggest that an enterprise license should be on an annual basis. An annual license will enable subscribers to benefit from being able to budget and determine internal charge-back configurations for the year in advance. Virtually everyone agrees that an enterprise license must provide the ability to opt out or renegotiate in the advent of a significant RIF, acquisition, or merger.
Discounted pricing for non-revenue producing employees -- an applications license based on types of usage (i.e. trading, monitoring, clearing, sales, research, back office, etc.) was conceptually appealing to user firms in that it would allow for more flexibility over usage a well as promote wider dissemination within the firm. Users were concerned that it might be both difficult to administer and difficult to assign value equations to the different categories of usage.
Uniform exchange policies covering the basic unit of count -- user firms would like all exchanges to adopt the policy of charging for market data based on keystations as the common unit of count. They maintain that if a person (for example) has multiple services accessed on multiple terminals connected by one keyboard, it should be charged as one unit (i.e. it's one user).
An enterprise arrangement to cover Web distribution to the firms client base -- firms would like to see an enterprise license developed to cover external dissemination of market data via the public Internet based on the maximum number of simultaneous users. They maintain that they are able to track and permission market data distributed via the Web and want to enable both internal subscribers and customers to be able to dial into the Web and get market data regardless of where the user is located. Firms acknowledge the difficulty of melding those two concepts together into a single enterprise license and would be interested in pursuing a separate license for Web access.