Lead Time Notification: Guidelines and Best Practice Recommendations for Successful Change Management

The global market data industry operates in a dynamic and complex environment. New financial instruments are being developed and introduced on a continual basis. The volume of quotes and transactions continue to grow at a substantial rate. And the technologies of market data dissemination are evolving on an unprecedented scale. Managing this torrid pace of change -- effectively and efficiently -- is a difficult challenge for exchanges, other information providers, market data vendors, brokerage firms, banks and other end-users in the financial information marketplace.

Real-time market data distribution depends on the close cooperation of many independent organizations and systems. Successfully introducing change depends on adequate notice and good communication between all participants.

Market data passes through literally dozens of different systems and networks on its way to the end user. Reporting and administration of market data fees involve equally complex systems and procedures. Changes to these systems may be straight-forward and routine, such as the launch of another futures contract. In other cases modifications may require procedural or technical changes that must be carefully designed, developed and tested. For these changes, adequate lead times-the notification period provided by exchanges or other information providers to market data vendors and downstream user firms-are essential.

This document was prepared by the Financial Information Services Division (FISD) of the Software & Information Industry Association, whose members include leading participants in the market data industry, in an effort to help the industry plan and control changes affecting market data distribution to ensure sufficient elapsed time for changes to be effected accurately and efficiently.

The Key Question: How Much Lead Time Is Needed?

So how much lead time do downstream vendors and users need? There is no single answer to this question. The best guidance comes from the "best practice recommendation", as illustrated by the attached examples. These examples are not intended to be prescriptive, bureaucratic, or contractually binding. Rather, they are simple illustrations of successful lead times and the process for managing different types of change.

Other than routine daily changes, virtually every change requires ongoing dialogue and feedback between information providers, vendors and users. Here are some reasons why:

• Systems are diverse and complex. The various systems and networks traversed by market data differ significantly from one another, and likewise the time to design and implement changes can differ significantly from one to another.
   
• Downstream organizations-users and market data vendors-employ finite resources to make changes, and these resources must be allocated to changes arising from many different sources. At times, it is simply not possible for downstream firms to implement changes at short notice.
   
• Contractual agreements between market data vendors and their users, as well as exchanges and their subscribers and vendors, often stipulate minimum lead times.
   
• Billing cycles can affect lead times for pricing changes. Sufficient lead time allows vendors to incorporate price changes without back billing, a costly, disruptive, and error-prone procedure.

Best practice calls for early discussion and notice with vendors and user firms, as described within this document.

Two Types of Change

Within the market data industry, there are two basic types of change -- administrative and technical.

Administrative changes include:

• Structural rate changes, such as a change from site fee to first location fee, or the bundling/unbundling of market data fee categories;
• New reporting requirements such as new categories of information;
• Adjustments to market data fee policy, such as a change from non-fee liable to fee liable;
• Fee changes for market data; and
• Other administrative changes, such as whether or not subscribers are allowed to distribute data.

On the administrative side of the business, lead times are at least partially subject to contractual agreements between information providers, vendors and subscribers.

Technical changes are those that require installation or modification of computer systems and networks used for market data distribution. These changes many be brought about by:

• Business changes, such as a new product launch, product changes, or introduction of multi-currency trading;
• Regulatory changes;
• Increased trading volumes; or
• Changes in technology leading to the replacement or enhancement of infrastructure.

Best Practice Recommendation

1. Minor changes which do not involve changes to network or administrative systems or procedures can be accomplished on 60 days notice or less from the exchange.

• EXCHANGE LISTINGS CHANGE
  New listings and delistings of equities, options and futures. These changes require an update to databases, but no software, hardware or network changes.
   
• CHANGE TO SESSION HOURS
  Change in hours in advance of a holiday.
   
• EXCHANGE MESSAGE CHANGES
  Minor changes to exchange messages such as the addition of new markers with no change to the underlying message structure.

2. Major changes which involve changes to network or administrative systems, hardware, software or commercial purchase decisions should be subject to a minimum of 120 days notice from the exchange provided vendors give users a minimum of 60 days notice of the change.

• UNBUNDLED EXCHANGE FEES
  Change from charging single fee for several exchanges to charging fees by each exchange. This requires many points of analysis and decision by most user firms so that profit centers can approve additional fees.
   
• CHANGE IN FEE STRUCTURE
  Change from site fee to first location fee basis, such that there will be fees per terminal rather than one flat fee per address. As with the example above, this requires many points of decision.
   
• SIMPLE PRICE INCREASE
  Increase in monthly fee per workstation. This must be approved at the departmental level at many user firms. Lead time subject to contractual agreement.
   
• NEW PRODUCT LAUNCH REQUIRING CHANGE TO FEED SPECIFICATION
  Introduction of flex options requires a new messaging format as well as adjustments to the display software at the desk. Both vendors and users must make extensive programming changes.
   
• ADDITION OF A NEW TRADING SESSION
  Addition of a new evening session may have major technical ramifications because it may require that a session indicator be added. It may also affect how volumes of trading are accumulated.
   
• CHANGE IN MESSAGE STRUCTURE
  Change to exchange messages involving changes to message layout require significant programming changes by vendors.

3. Exceptional changes may have such an impact on the industry that no set notice period is appropriate. Best practice in these cases requires joint coordination and planning to manage the change.
[FISD can serve as a neutral forum for communication and help facilitate the extensive discussion and consultation between all players involved in implementing exceptional changes.]

• ADMINISTRATIVE CHANGE REQUIRING NEW REPORTING PROCEDURES AND NEW SYSTEMS
  Redefinition of the contractual distinction between "open" and "controlled" datafeed environments. This requires changes to the pricing model and to all subscriber agreements. Datafeed subscribers must produce new exhibits documenting how each of their systems is controlled.
   
• COMPLETELY NEW EXCHANGE FEED AND SYSTEMS
  An exchange redevelops its computer infrastructure and data feeds. Substantial hardware, software, and network changes are required for all recipients. An example would be a fundamental change in network protocol such as from HDLC to Multicast IP which requires new communication equipment and lines for all parties.
   
• MIGRATION TO THE EURO
  Dual display of existing currency and eventual common European currency unit will require very substantial systems analysis and change.
   
• YEAR 2000-RELATED CHANGES
  Year 2000 changes will require unusually careful discussion and coordination. As the millennium approaches, it is advisable that fewer non-Year 2000 changes be undertaken because as the new century draws near, even simple changes will compete for resources devoted to Year 2000 changes.

Hallmarks of Successful Change Management

Successfully effecting change depends on close communication between information providers, market data vendors, systems integrators, and subscribers. Hallmarks of successful change management are:

1. Early assessment of the impact of changes through the various distribution channels. In other words, the impact of change (and lead time required to effect it) will typically vary from vendor to vendor and subscriber to subscriber. Thus, a dialogue between all information providers, vendors, subscribers and systems integrators is crucial. Some exchanges have found focus groups and individual vendor meetings to be effective. Others have used the services of the SIIA/FISD to facilitate vendor assessment of proposed changes.
    
2. Clear, well-documented definition of the change to be effected. Specific, detailed specifications lead to equally specific implementation plans on the part of downstream vendors and users.
    
3. Adequate lead times (including conformance with contractual requirements) with widely disseminated milestones to effect change.
    
4. Consideration of the impact of the change on billing cycles. Fee changes which can be implemented to coincide with billing cycles reduce the need for complex and costly back billing and invoice reconciliation.
    
5. A comprehensive test plan for technical changes.
    
6. Ongoing communication with downstream firms implementing changes to assure prompt response to problems encountered and a smooth go-live.

How the SIIA/FISD Works with the Market Data Industry
Formed in 1985, the Financial Information Services Division (FISD) is one of five operating entities of the Software & Information Industry Association (SIIA). FISD provides an effective and balanced global business forum for over 130 exchanges, market and business data vendors, workstation and system integrators, news organizations, brokerage firms and other end-users on the business and technical issues associated with the generation, dissemination, and use of financial information.

FISD exists to promote mutual understanding among the organization involved in the financial information industry. More importantly, since all sides of the industry are mutually interdependent, FISD provides a foundation and structure for participants to network and to establish relationships with the people they have to deal with on an ongoing basis. As a result, FISD has been effective in helping clarify positions and in promoting better exchange, vendor, user relationships.

The importance of these guidelines to the successful management of change is recognized by members of SIIA/FISD who support industry use of these guidelines whenever possible.