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The Intercontinental Exchange, better known as the owner of New York Stock Exchange, said Monday it’s buying a company called Interactive Data Corporation for $5.2 billion. Nasdaq and the financial-data publisher Markit were said to be vying for the company as well. Which begs the question: What’s so hot about this data company?
Pricing financial securities is one of IDC’s specialties, especially those that are hard to value or rarely traded, such as some corporate or municipal bonds.
“There’s no way to accurately provide a valuation of that bond based on the last trade, because that last trade could be a day, a week, a month or even a year ago,” said Dan Connell with Greenwich Associates.
He said mutual funds might use IDC data to value parts of their portfolios, information that would show up on the statements of its customers.
“When it says this is a particular portfolio and this is what it’s worth this month versus last month, that’s all calculated using underlying pricing by firms like IDC,” Connell said.
Why would the Intercontinental Exchange (ICE) want that data?
“The financial markets are voracious consumers of data, particularly price data,” said Craig Pirrong, a finance professor at the University of Houston. Pirrong said ICE already is selling the pricing data it collects on trades.
“They make a lot of money selling that, so about 15 percent of ICE’s revenues come from sales of data from the prices generated on its exchanges,” he said.
ICE’s acquisition of IDC allows it to offer more information to customers. In fact, ICE has been expanded its data business through previous acquisitions, as has Nasdaq.