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Market intelligence report – December 2006
Executive summary
• The majority of organizations (47%) claim to already • Although 46% of respondents think the raft of data
have an enterprise data strategy supported by top management initiatives undertaken across the industry
management. However, while most organizations in recent years have helped to improve the number of
said they want to centralize responsibility for data failed trades due to poor reference data, a significant
management, several respondents commented that 27% think the situation has got worse—due mainly to
they knew of only one Tier 1 financial group that has growing trade volumes in more sophisticated
taken the step of creating a dedicated C-level role instruments such as credit derivatives.
responsible for data management.
• Although very few organizations said they would be
• Risk management and business enablement are the unable to identify the top 10 revenue-generating
key business drivers for investment in enterprise data customers across their business, most said it would
management (EDM). For larger firms it is also seen as require some level of manual extraction from several
key to facilitating new areas of business such as data warehouses.
algorithmic trading. However, interestingly, it is better
client and internal reporting that are seen as the major • 65% of respondents think mandatory electronic filing
benefits to be gained from the investment. of reports is inevitable and likely to arrive within the
next few years.
• Complexity of legacy IT systems is still the most
common hindrance to realizing enterprise data Methodology
management and lack of concrete return on This survey was targeted at chief technology officers
investment (ROI) is making raising budget more (CTOs), chief information officers (CIOs) and other senior
difficult. However, sixty-five percent of firms expect to data and business managers of major banks and buy-
spend more money on enterprise data management side and sell-side firms. Finextra Research conducted
in the next financial year. 17 telephone interviews with executives based in Europe
and North America throughout August and September
• Most organizations are happy that reporting on 2006. The aim was to understand what enterprise data
positions exposure tends to be an end-of-day activity. management means to the industry, what initiatives
If required to do this on an ad-hoc, intra-day basis, for organizations have completed and planned for the future,
instance in the event of a market crash, less then half what challenges they face and what benefits they hope
(47%) said they could generate this information within to achieve.
four hours and only 18% within the hour.
Contents
Executive summary 2 Challenges in achieving EDM 7
Defining enterprise data management 3 Budget allocation for data management 8
Data management strategies 4 Intra-day generation of business intelligence 9
Business drivers 5 Trade failures and electronic reporting 10
Business benefits from EDM 6 Conclusion 11
The way survey respondents defined enterprise data Priorities of the buy-side and sell-side
management (EDM) tended to be dictated by the nature The specific data management requirements of firms
of their business, their position and the scale of their operating in banking and the buy-side and sell-side of the
company. For the CTO of a large global financial group capital markets obviously differ. Sell-side institutions are
with wide-ranging business units, the term ‘enterprise’ more concerned with market data and reference data,
has a very different meaning than for the chief operating such as standard settlement instructions, and customer
officer (COO) of a fund management firm or the head of and legal entity data. These are the building blocks for
reference data for a securities firm. sales trading and other client businesses, but they must
also be combined with internal financial and
But there was broad agreement that enterprise data organizational data.
management is a process required to enable disparate
applications and parts of a business to share information. Buy-side firms are less concerned with the pricing data
It is driven by a need to promote accuracy, transparency for instruments that make up their portfolios. They are
and efficiency in the business to ease regulatory more concerned with portfolio valuation, the data they
compliance and improve client service and performance. receive from custodians and funds administrators,
Most organizations said that, for them, it involved corporate actions and the data they need to serve and
capturing, managing and analyzing product, customer, report to customers effectively.
counterparty and operational data at a very granular level.
Where relevant (and legal), they said they had begun to,
or wanted to, standardize and manage data centrally and
share it across the business.
The majority of organizations (47%) claim to already Those organizations making changes to systems and
have an enterprise data strategy supported by top processes to improve data management found that, in
management, and a further 18% said they are currently some areas—such as defining an architecture,
forming such a strategy. Of the 17% who responded implementing new components and rationalizing
“other,” most said they have a mix, where certain systems and data feeds—they could use a phased
decisions about data management are still handled approach. In other areas, such as implementing a new
solely at a line-of-business level. Other data is managed data warehouse or making a discrete change solely
centrally at a business unit, company or group level. within one line of business, a “big bang” switch-over was
It is mainly the data related to risk management and the preferred, or only, option. But, generally, a “take it
compliance that falls into the latter category. slowly” approach is preferred to help earn users’ trust,
reduce risk and get agreement from all parties on
Ultimate responsibility for data management usually falls definitions, business processes and methods of
to a CTO, CIO or COO, but in most cases they work in standardizing and sharing data.
conjunction with business champions or dedicated data
managers from various business units and trading and
operations areas across the enterprise. While most
organizations said they want to centralize responsibility
for data management, as well as for the data itself,
several respondents commented that they knew of only
one Tier 1 financial group that had taken the step of
creating a dedicated C-level role responsible for data
management. But these respondents said they expected
others to follow this move eventually, and one buy-side
firm said it was actively investigating this possibility.
17%
47%
18%
18%
Business drivers
Risk management was seen by the majority of Business enablement received the second-highest
respondents as the key business driver for investment in aggregate of important and very important rankings
enterprise data management (59% very important and (76%), as respondents recognized the importance of
24% important), followed closely by compliance (47% having a sound foundation of data management if a
very important). There is obviously an overlap between business is to scale effectively and enter new markets.
these two areas, with regulations such as Basel II For several of the larger sell-side firms being surveyed,
focused on credit, market and operational risk. Several effective data management was seen as crucial for plans
respondents mentioned this regulation specifically. to further expand direct market access and algorithmic
Others that came up as business drivers include the trading activities.
various anti-money laundering regulations now in place in
most markets around the world and the Markets in
Financial Instruments Directive (MiFID), which will put
pressure on organizations trading in Europe to prove best
execution and improve transparency.
Risk management 6 11 24 59
Compliance 12 23 18 47
0 10 20 30 40 50 60 70 80 90 100%
Very important
Important
Neutral
Unimportant
It is interesting to note that better client and internal Consolidated customer balances and risk positions were
reporting is seen as a major benefit to be gained from seen as having the largest impact overall, which is not
investment in enterprise data management, as reporting surprising given that improving risk management was
ranked relatively lowly among drivers for the investment. identified as the major driver for investing in data
But respondents from those organizations that have management. (page 5)
made progress in their data management initiatives
report that they have been able to provide much more The ability to do cross-asset margining is a benefit
timely and accurate information to clients, as well as relevant to sell-side firms. Leaving aside the banks
generate business intelligence on things such as line-of- and buy-side firms, all of those surveyed said their
business and desk profitability, exception rates and data management initiatives had started, or would start,
losses. Conducting real-time analytics was seen as less to give them the ability to use their consolidated
of a benefit, with some respondents saying their understanding of a client’s activities across lines of
organizations have this capability already and don’t see it business to manage margins more appropriately.
as directly related to enterprise data management.
0 10 20 30 40 50 60 70 80 90 100%
High impact
Some impact
No impact
The majority of organizations find that the complexity Interestingly, the respondents who claimed they had no
of legacy IT systems has a major impact on their ability problems with getting board-level buy-in tended to face
to realize their goals for enterprise data management. fewer problems in other areas. One respondent said his
The firms that didn’t have this problem tended to be the organization’s board recognized several years ago the
smaller ones. But the 18% of respondents who claimed importance of having a solid data management
no problems in this area included several large foundation for the business. As a result, the organization
organizations that said they had streamlined their IT was willing to overlook any issues of short-term ROI and
infrastructure over the past few years and that it now see the investment as more of a long-term business
had no impact on their ability to implement new data enabler, green-lighting projects that would be completed
management initiatives. over several years.
Finding the required budget to make necessary Organizations that see cultural and political issues of data
investments was the second-most frequent problem, ownership as an obstacle said part of the problem was
and this is closely linked to the difficulties in establishing a change management in introducing new systems and
concrete ROI for these investments. Those organizations processes. But it was mostly getting different parts of the
that said the ROI issue had some impact mostly claimed business to agree on standard definitions. For example,
it was more of an annoyance than a hindrance. But those how do different parts of the business define a customer
that found it a significant problem said it was difficult to today? And how can those definitions be made
get long-term projects, such as data management consistent across the organization?
initiatives, pushed forward when there was a competing
and constantly growing list of short-term priorities.
IT complexity 18 29 53
0 10 20 30 40 50 60 70 80 90 100%
High impact
Some impact
No impact
Sixty-five percent of firms expect to spend more money Fig 5. In your next financial year
on enterprise data management in the next financial year. is your budget for enterprise data
The very few firms that have decreasing budgets have management likely to:
just completed large projects and are planning to let them
bed in over the next year before investing in any further
significant changes.
6%
New applications and changes to existing applications
were the most frequent areas for investment, followed
closely by new in-house hires and external consultants, 24%
and third-party data sources.
65%
5%
Increase
Decrease
Stay the same
Don't know
Applications 12 6 82
People 12 18 70
Platform 18 23 59
Tools 12 29 59
0 10 20 30 40 50 60 70 80 90 100%
Yes
No
Don’t know
Very few organizations said they would be unable to Reporting on positions exposure tends to be an end-of-
identify the top 10 revenue-generating customers day activity, and most organizations are happy with this.
across their business. But answers tended to come However, in a hypothetical situation where respondents
with the caveat: “It depends on the level of accuracy are asked to do this on an ad-hoc, intra-day basis, less
required.” Also, CTOs from large financial groups said then half (47%) said they could generate this information
it could be done more easily for the investment banking within four hours. An example of a situation where this
business units, but in commercial banking or across the might be necessary is in the event of a market crash or a
group, it could not be done within 24 hours. major counterparty getting into severe financial difficulties
Respondents from buy-side firms and the largest sell- and reneging on all financial responsibilities.
side players tended to be more confident about their
ability to generate this information. In a few cases, they
said the process was largely automated. Most, however,
said it would require some level of manual extraction from
several data warehouses.
One respondent pointed out that, even with all trade data
held, revenue calculations could be difficult and time
consuming. Taking that to profitability calculation would
be even more difficult. An average- or activity-based
costing model could be used, but factoring in time spent
servicing clients would complicate matters further.
Fig 7. How quickly could you run an Fig 8. If asked, could you accurately
intra-day enterprise-wide report on and within 24 hours identify the top 10
your positions exposure? revenue-generating customers across
your business?
18%
24%
29%
6%
29% 70%
24%
In 2001, Finextra conducted a survey on behalf of which has been used by some listed companies for
TowerGroup that showed 30% of all trades that need formatting annual financial filings for several years now—to
repairing are due to poor quality reference data1. When file other types of report. Ostensibly, these XBRL reports
respondents were asked how they thought this situation could be generated automatically if an organization had an
had changed over the past five years, answers were effective enterprise data management strategy in place.
mixed. Most (46%) thought the raft of data management
initiatives undertaken across the industry in recent years Respondents weren’t asked about XBRL or any one
had helped to improve the situation. But over a quarter regulation or regulator in particular, but 65% said they
(27%) thought the situation had got worse—due mainly to thought mandatory electronic filing was inevitable and
growing trade volumes in more sophisticated instruments likely to arrive within the next few years. No one disagreed
such as credit derivatives. While reference data initiatives with the assumption, but 35% felt insufficiently informed to
have helped to decrease trade failures in vanilla products provide an answer. One respondent, who thought it would
such as equities, they believe this is being overtaken by likely occur in the next few years, said there is a feeling
manual processing and poor data standardization for among some in the industry that this is not necessarily a
complex instruments. Twenty-seven percent also thought good thing because, if there is an open channel for
the situation had just about evened out, placing the market delivering information to the regulators, they may request
in much the same situation as it was in 2001. more and more information, increasing compliance costs
for the regulated organizations.
Respondents were asked about the inevitability of
electronic filing for regulatory reports. The SEC and FSA,
among others, seem to be moving in this direction and
investigating the use of the XML-based XBRL language—
1. Reference Data: The Key to Quality STP and T+1, October 15, 2001, TowerGroup report sponsored by
Reuters and Capco.
Fig 9. Over the last five years, do you Fig 10. Do you think mandatory
think the percentage of trades in the electronic reporting for the
industry that need repairing due to majority of industry regulations
poor quality reference data has: is inevitable?
27% 27%
35%
65%
0%
46%
Increased Yes
Decreased No
Stayed the same Don't know
Don't know
Conclusion
The survey reveals there is a growing understanding of Other challenges include managing the data associated
the benefits organizations can achieve from investing in with increasingly complex financial instruments, and
enterprise data management. But progress varies across dealing with countparties and service providers whose
the industry. Some smaller firms have taken advantage own approach to data management may not be as
of their simpler operating structures and fewer legacy thorough and robust. Overcoming these challenges,
systems to create a streamlined approach to data organizations want to continue improving the quality of
management across parts of the business. And many internal and client reporting. This is driven by risk
large Tier 1 organizations have begun to reap the rewards management and compliance needs as well as
of their investment in large multi-year enterprise data competitive differentiation through better client servicing.
management initiatives that have, to varying degrees, To these ends around two-thirds of those surveyed will
improved management of product, customer, spend more money on enterprise data management in
counterparty and operational data. Others, however, the next year. Amid this spending, responsibility for
are at an earlier stage and are still dealing with the enterprise data management is likely to become
challenges of complex IT environments, change increasingly centralized as organizations form long-term
management issues and getting budget and board strategies that see effective data management as a core
level buy in. enabler for future business growth.
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