Janelle Veasey and John Mason discuss the insights gained from a new Refinitiv survey that explores ways in which firms are trying to harness the value of market and reference data to increase revenues and boost efficiencies.
- Firms are falling about one-third short of their potential because they do not have access to the data and tools that they need to perform their jobs.
- $1.76 trillion in new revenue could be unlocked within the firms of sell-side respondents if they had access to the market and reference data to meet their full potential.
- 84 percent of survey respondents rate the ROI on their investment in market and reference data in the front office as “excellent” or “good”.
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Financial services firms across the globe could boost both revenue by 36 percent and efficiencies by 34 percent if they had access to the market and reference data, and supporting tools, that they need to reach their full potential.
For example, increased revenues could come from new trading strategies, enhanced back-testing, improved best execution capabilities and new products and services. Greater efficiencies could result from moving data and analytics to the cloud and enhancing data governance.
This is according to a new Refinitiv survey, conducted in March and April of this year, of almost 1,600 buy-side and sell-side employees of financial institutions around the world.
These individuals are knowledgeable of, involved in, or are decision-makers about market and reference data within their organisations. Their roles span across three organisation areas: the front office; the middle, and back office; and infrastructure, IT, and support.
Identifying the potential gap
According to the new report, based on the survey – Unlocking Hidden Value in Market and Reference Data Across the Organisation – respondents feel they are falling significantly short of their potential because they don’t have access to the data and tools necessary to perform their jobs.
For example, front office decision-maker respondents say they are falling 38 percent below their potential, while middle and back office decision-makers say they are 34 percent below their potential. Other results of interest include:
- The buy-side feel they are falling short of their potential versus the sell-side across all three organisational environments.
- Front office respondents in Brazil were the most pessimistic, with front office respondents saying that they fall 40 percent short. Mid and back office respondents from Brazil say they are falling 35 percent short.
- Across the survey, sovereign wealth respondents felt they were falling short of their potential the most in the front office (38 percent), mid/back office (35 percent), and Infrastructure/IT/ Support (35 percent).
- Respondents who were involved in middle and back office post-trade activities believed they were falling shorter of their potential than respondents in the same areas who were involved in other types of activities. For the front office, they say they are falling 37 percent short, mid/back office is 34 percent short, and infrastructure/IT/Support is 34 percent short.
These robust results could be partly explained by the increased need for data within firms today.
For example, the importance of market and reference data to their firm has increased for two out of three respondents, and nearly three out of 10 say it has increased significantly. Additionally, more than seven out of 10 respondents say their firms have increased their use of this data over the past 12 months.
Driving revenue and efficiency
Nearly all (98 percent) respondents believe that if their entire organisation had access to market and reference data to reach its full potential, they could unlock more revenue. On average across all financial institutions, respondents believe this could be as much as 36 percent more revenue – or USD$1.76 trillion in revenue for the firms of sell-side respondents in the poll.
The same holds true for the ability of market and reference data to deliver efficiencies. The survey respondents say that there would be an average of 34 percent in potential efficiencies achieved.
In fact, overall in the survey, 80 percent of respondents agreed that investment in market and reference data will help them achieve efficiencies in the middle and back office. In addition, 84 percent agreed that better usage of this data will help them to achieve greater efficiency so that they can reallocate resources to more revenue-earning streams.
An example of this value generation in action is the process of moving tick history data and analytics to the cloud. According to analysis on actual clients by the Refinitiv Tick History team, switching from on-premises to the cloud can reduce the total cost of ownership by 90 percent, while significantly speeding up the compute time.
Understanding the ROI
Even with examples such as moving tick history data and analytics to the cloud, the expectations around the potential for market and reference data and related tools to drive increased revenues and enhanced efficiencies can sound very optimistic. So, it’s worth keeping in mind the return on investment (ROI) that firms are achieving today through their current market and reference data strategies.
For example, 84 percent of all respondents say that the ROI on investments in the front office are either “excellent” or “good”. The levels of ROI for the middle and back office (76 percent) and for infrastructure/IT/support (77 percent) are also strong, although lower than for the front office.
This “perception gap” between the front office and the two other organisation areas is explored more deeply in the report. It is shown that firms clearly experience challenges around culture when it comes to implementing market and reference data strategies.
This can result in data disconnections between the three organisation areas, which can break processes, require manual intervention and increase costs.
The report discusses how these cultural challenges can be overcome so that market and reference data strategies deliver connected data across the organisation.
Further market and reference data ROI observations
Other interesting points to note in the responses to the survey around ROI include:
- The buy-side firm types view the market and reference data ROI for the front office the most strongly, including hedge funds (45 percent excellent), mutual funds (45 percent) and sovereign wealth funds (43 percent).
- Firm types that viewed market and reference data ROI for the middle and back office the least favourably include interdealer brokers (32 percent, average and poor), brokers (30 percent) and hedge funds (27 percent).
- Respondents from the Americas view ROI for the front office the most strongly, with 87 percent rating it excellent or good, compared with 82 percent for Europe and 81 percent for APAC.
So, according to the survey, current market and reference data strategies are already delivering substantial ROI for firms. However, significantly more potential could be achieved through additional investment in market and reference data and supporting tools.
For firms, achieving this will require linking data across the whole of the organisation, so that data flows seamlessly across the front, middle and back office, and infrastructure/IT/support.
For financial services firms, the future is connected data, supported by improved data governance, a shift for data and analytics to the cloud, and enhanced operational resilience.