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Derivatives Complicate Enterprise Data Management:
OTC instruments underscore need for unified platform, says GoldenSource
June 25, 2007
In a survey conducted for the GoldenSource report by consultancy A-Team Group of more than 40 senior reference data management executives at financial institutions around the world, 85 percent mentioned derivatives and options as one of the five most difficult-to-manage data types that they are dealing with. Structured products such as mortgage-backed securities and collateralized debt and mortgage obligations were cited by 45 percent. About three out of four had reevaluated--or were planning to reevaluate--their data management processes because of the growth in over-the-counter derivatives.
The findings are in a paper, "Static Instrument Data Turns Dynamic," that is available at the www.thegoldensource.com site and is the first in a planned series of three on EDM issues. The second will focus on customer and counterparty data, followed by a report on position and transaction data.
GoldenSource advocates enterprisewide data management and central governance as a solution. Although most firms expect to maintain multiple master files, those files will increasingly be governed by some centralized management.
"People get it," says Gert Raeves, VP of marketing and business solutions at New York-based GoldenSource. "They are very much interested in building out centralized data management and putting it into an enterprise approach across instruments, customers and counterparties."
The survey indicated that while corporate actions continue to be a problem, adoption of the International Organization for Standardization (ISO) 15022 standard for corporate action messaging is increasing. Eighty percent of the respondents either receive or plan to receive ISO 15022 messages from a data vendor; 60 percent receive it from custodians and 62 percent receive it from other sources including the Swift network.
Speed and automation are also on the rise, as 100 percent of those surveyed said they expect to move toward more feed-based products in the next two years and away from data terminals and manual processes to plug gaps in securities master files.
Raeves believes firms are moving away from point-in-time snapshots of data and toward real-time views. While they will continue to use data warehouses for customer service and client reporting, for pricing and risk management they want to rely on live data feeds.
A-Team Group said the survey validated that regulation is a key driver of change in the data management environment. "We were able to drill down into specific areas where they are having an impact, highlighting the need for instrument-to-entity linkages as a significant requirement, as is the need for audit trails and data retention, both with 95 percent believing these are significant or moderate factors," it said. It said the impact of Europe's Markets in Financial Instruments Directive was "strong, but regional."
Showing how data management issues have moved beyond purely IT discussions, a majority of the firms surveyed have an operating committee with business unit representatives to oversee data management. "There is no argument about the concept of enterprise data management," says Raeves. "The survey showed a very high adoption rate, 85 percent to 90 percent and higher." Even those who have not yet built an EDM infrastructure accept the concept's validity.
