Following last month’s webinar on derivatives and data management, A-Team Group and EDM vendor GoldenSource have released a report on the specific challenges faced by global reference data managers in buy side firms, with a particular focus on the impact of OTC derivatives. The report involved discussions with a sample of senior individuals directly involved in buy side reference data management from the top 100 asset management firms, largely from the UK and US. Of these respondents, 70% had global data responsibilities and another 15% had regional responsibility.

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The rapid take-up of OTC derivatives and associated business risk, is causing buy-side firms to reevaluate strategies, even those with well established data practices, according to an international survey commissioned by GoldenSource Corporation. The research, carried out by A-Team Group, studied trends among buy-side firms in managing instrument data and found that almost 80 per cent of asset managers are reviewing their data management strategies due to complex products. A copy of the full report, Buy-side Firms Take a Hard Look at Data Practices, is now available for download here.

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A large proportion of buy side firms are being compelled to re-evaluate their data management systems as a result of their use of complex instruments, according to A-Team Group and GoldenSource’s recent derivatives webinar, Derivatives: The Eye of the Data Storm.

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A new report from Aite Group that examines IT spending by capital markets firms says operational efficiency remains the top priority for the year among technology executives allocating budgets for IT initiatives. While risk management, systems integration, back office settlement and front office workstations will be the top systems priorities, enterprise data management projects will lead core technology implementations, the analyst predicts.

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A new report from Aite Group that examines IT spending by capital markets firms says operational efficiency remains the top priority for the year among technology executives allocating budgets for IT initiatives. While risk management, systems integration, back office settlement and front office workstations will be the top systems priorities, enterprise data management projects will lead core technology implementations, the analyst predicts.

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When it comes to reference data, TowerGroup has something of a reputation for spotting a trend just as it is about to become a major industry focus. Statistics from the analyst’s first major report on the subject in 2001 and its updated iteration in 2005 are still liberally cited by industry commentators in print and on the conference circuit. So its latest publication on the subject – a “viewpoint” put together in October and released earlier this month, entitled Collaborating on Reference Data: Is Now the Time? – inevitably attracted some attention.

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Enterprise data management (EDM) is entering a new phase, progressing from a goal of collating, cleansing and storing data, and evolving into a broader strategy encompassing workflow orchestration and subsequent distribution to downstream applications. This is one of the key findings in a new white paper produced by A-Team Group and sponsored by Reuters. The most prominent drivers of this increased attention on EDM are risk management and regulatory compliance.

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In its new report, Managing the Rapids of Downstream Data Connectivity, analyst Aite Group predicts spending on downstream connectivity around enterprise data management projects in Europe and the US will exceed $2.5 billion in 2008. The report also finds that EDM projects typically mature an average of three years before firms really start to tackle downstream connectivity. Only 10 per cent of an initial EDM budget is allocated to downstream connectivity, on average. Internal IT produces 57 per cent of all connectors. Integration vendors such as PolarLake (Reference Data Review, March 2007) are rounding on the downstream data distribution element of the EDM puzzle, but according to the report’s author Aite analyst Adam Honore third-party solutions haven’t made much impact here yet. “It’s not often that I’ll say there is room for more vendors to enter a space, but in this case I would certainly say that,” he comments.

Investment management consulting firm Citisoft has published a white paper focusing on client reporting, and exploring the importance of data management in this context. One of its key findings is that the success of new or updated client reporting initiatives is closely related to the strength of investment managers’ data management systems.

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The growing use of OTC derivatives is shaking up data management strategies across the industry. Three-quarters of firms have re-evaluated or are planning to re-evaluate their data management processes as a direct result of the expansion in use of these instruments (see chart, below), according to a survey conducted by A-Team Group (publisher of Reference Data Review).

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Proof of the long-predicted evolution of reference data management into a strategic concern for financial institutions comes this month in a new A-Team research paper commissioned by SunGard Data Management Solutions. The research, the result of a Buyer Persona Study carried out by A-Team Group during Spring 2007, finds that the strategic evolution of reference data is well under way under the jurisdiction of top managers. More than half of respondents to the survey – 51.6 per cent – said their data management strategies and systems purchases had been signed off by their CIOs, CTOs, COOs or CEOs. More than a quarter – 16.1 per cent – said their boards of directors had been involved in the approval process.

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Enterprise data management (EDM) initiatives will account for $1.67 billion of spending by financial services firms in 2007, driven in the US by securities reference data challenges and data silos, and in Europe by the requirement to control client and counterparty data to comply with regulation such as MiFID and Basel II. So says analyst Aite Group in its new report, Capital Markets IT Spending Priorities in 2007. Fifty-four per cent of the firms surveyed by Aite said they anticipate implementing an EDM solution this year, with 38 per cent uncertain and only eight per cent saying they wouldn’t be undertaking an EDM project.

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Confirmation that understanding of the importance of enterprise data management is growing among C-level executives comes this month in a new report commissioned by GoldenSource. According to the report, based on 17 interviews with CTOs and CIOs within financial services firms in North America and Europe, 47 per cent of respondents say their firms have in place an enterprise data strategy supported by senior management.

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Financial institutions in Continental Europe spent some €200 million on internal and external corporate actions solutions in 2006, with 75 per cent of that spend going on inhouse development, according to a recent report from analyst Celent, Corporate Actions Automation in Continental Europe. Celent expects this proportion to decline to 55 per cent by 2010, resulting in an increase in spending on third party corporate actions services from €46 million annually to €113 million by 2010, a five year compound annual growth rate of 20 per cent. By 2010, Celent expects Continental European institutions to spend more than €30 million on corporate actions data scrubbing services.

Where do we go from here? This is the question posed in a recent paper from analyst Aite Group, exploring trends in OTC equity derivatives. OTC equity derivative growth has been steadily increasing – the market grew by a year over year rate of 32 per cent as of June 2006, according to the International Swaps and Derivatives Association – but rapid growth is being constrained by the inability of operations to keep up with trading innovations, Aite suggests. One of the key factors constraining growth is the “lack of standards in processing protocols”, it says.

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If you thought the heady world of automated trading, dark pools and liquidity fragmentation under MiFID and RegNMS had little effect on the humble reference data function, then you thought wrong, it seems. A recent research note from analyst Tabb Group identifies a growing need for sell side firms to establish comprehensive liquidity management functions, and warns that not having the requisite integrated, enterprise wide reference data infrastructure in place could represent a real spanner in the works.

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By 2010, more than 10 per cent of total spending within the enterprise data management industry will be on legal entity data management, says analyst Aite Group in a new impact report. Regulatory pressure is driving a 200 per cent average annual growth rate in spending in this market, Aite says, encouraging spend on legal entity data services to rise from some $16 million in 2006 to $253 million in 2010. The report profiles four vendors of products to facilitate customer and counterparty data cleansing and management, including Avox, CounterpartyLink, Credit Dimensions and D&B. The vendors were asked 64 questions regarding corporate information, product overviews, data information, origination, distribution, regulatory examination and services. This is the analyst’s second look in 2006 at counterparty data; earlier in the year it predicted 2007 would be the year counterparty data projects climbed up the priority list to be as compelling as instrument data projects (see Reference Data Review, August 2006).

The findings of the 2006 B.I.S.S. Corporate Actions Benchmarking Report show that the systems of the four providers covered in detail – CheckFree, Information Mosaic, SmartStream and Tata Consultancy Services (TCS) – all score well in the data handling categories. B.I.S.S. Research confirms all these vendors have invested heavily in their systems and developed new functionality.

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The reference data management industry has moved into the limelight and can no longer be viewed as a niche market. So suggest the findings of AIM Software’s third Global Data and Risk Management Survey. The wide ranging research, based on responses from 1027 financial institutions in 77 countries, finds that 28 per cent of firms are currently planning to invest in the automation of static data, with more than a quarter intending to automate pricing data and corporate actions. While 22 per cent of interviewed companies are still using proprietary solutions for data management, the number of companies prepared to buy third party systems grew from 19 per cent in 2005 to 22 per cent in 2006.

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It will come as no surprise to learn that Wall Street made more money from derivatives products and structured instruments in the first quarter of 2006 than ever before. Into the growing hype about derivatives wades TowerGroup this month, with a raft of reports on the subject, including predictions of annual growth rate in derivatives IT spend of 18 percent annually. But what impact will the burgeoning derivatives business have on market and reference data?

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