Market Data managers and those who engage with market data across the front, middle and back offices of financial services firms are looking forward to regaining the initiative in 2021, after a year spent responding to the COVID-19 pandemic.
- Amidst adversity there is opportunity, but organisations need the right market data strategies to support front-office analytics.
- Regulatory change will continue at pace in 2021, with an intensified focus on data governance at financial services firms.
- Market data strategies will need to support innovation and automation, while keeping the total cost of operations (TCO) under control.
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Faced with a range of challenges across multiple areas, market data strategies are having to evolve at pace.
Today, data needs to be the fuel that flows through the front, middle and back offices at firms — and between financial organisations — around the globe. As firms put the final touches on their market data strategies for the next 12 months, there are six key trends that they should consider:
Market data strategy trends
1. Understanding the challenges and opportunities created by increased volatility and activity in the markets
For example, extremes in volatility generated by the reactions to the COVID-19 pandemic, Brexit, and the U.S. presidential election were colossal, creating significant issues across the front, middle and back offices.
Also, many trading-related and supporting roles across the enterprise were and continue to be challenged by remote working arrangements. And yet, by Q3 2020, the debt capital markets saw $8 trillion in issuance.
Meanwhile, by early December, $762bn had been issued in equity capital markets. As a result, Refinitiv data finds that the global investment banking fee income reached $91bn in the first three quarters of 2020, a 15 percent rise on the same period in 2019.
It’s clear that the current uncertain times generate both challenges to traditional operating models as well as opportunities for the agile. To thrive in such conditions, the front, middle and back office require the ability to take the right decisions and enhance the operational resilience of processes using trusted data and analytics, as well as evaluated pricing services.
2. Complying with new regulations that require fresh data sets and analytics
This year sees a considerable amount of regulatory change hitting the front, middle, and back offices.
Whether it’s LIBOR/IBOR, FRTB, operational resilience, Brexit adjustments for the City of London, SFTR, ESG regulations and standards, or other regulatory trends, 2021 is going to be an even busier year than 2020 was for the middle-office risk management and compliance teams that support front-office traders.
Underpinning many of these regulatory change management projects is data — and particularly market and reference data.
For example, to prepare for the migration away from LIBOR before the end of 2021 (or perhaps June 2023, as this may be extended), many firms are having to reconfigure their market data strategy.
While LIBOR was one set of data, it is being replaced by a whole range of interest rate benchmarks, including risk-free rates such as the Sterling Over Night Index Average (SONIA) in the UK, Secured Overnight Financing Rate (SOFR) in the U.S. and Euro Short-Term Rate (€STR) in the euro area.
Firms are also reconsidering how this data comes into their organisation, is stored, analysed, and used — with many firms eyeing a move to the cloud.
3. Engaging with increased regulatory interest in how financial services firms manage their data
Around the globe, regulators are proposing new rules and guidance that have a data governance angle, which will impact firms across the entire enterprise.
For example, the EU is working on a Data Governance Act, which will re-frame many data relationships. It’s also overhauling MiFID II, and seeking to put in place a new consolidated tape. The U.S. is also in the process of overhauling its own consolidated tape program.
Recent consultations by the Basel Committee on Banking Supervision talk about data governance of operational risk data, and resilience in working with third parties such as data suppliers. And of course, there are the ongoing issues around regulatory trade reporting in the U.S., the UK, and the EU.
Regulators’ patience is wearing thin over repeated reporting errors or failures to report trade data, and are putting the cause of these issues down to poor data governance and management. Firms can expect regulatory pressure around data governance and data strategies to increase over the next few years.
4. Increasing the focus on proactively managing the total cost of operations (TCO), while continuing to meet obligations and deliver value
The pressure on market data strategies has never been higher. The front-, middle- and back-office functions are evolving at an accelerating rate, and data is needed to drive this development.
The cost of the data is only one element — recent Refinitiv research indicated that for every $1 spent on financial market data, a further $8 was being spent by financial services organizations on processing, storing and transforming the data before it could be analysed.
At the same time, regulators are demanding more data, analytics, and regulatory reporting from firms.
All of these pressures mean that the cost of acquiring, cleaning, normalising, storing, and deploying data is on the rise for firms, while at the same time, budget pressures are also growing.
Today and in the future, market data strategies need to deliver what the business requires to meet its goals and ensure compliance, while at the same time proactively managing TCO. As a result, successful market data strategies will need to engage with trusted data partners.
Many firms are turning to cloud-based data solutions, such as Refinitiv Real-Time — Optimised.
5. Automating trading-related processes across the front, middle and back offices
For a long time, both regulators and financial firms have been interested in automation so that trades can be processed straight through from the transaction in the front office, through the middle office to the back office.
The attraction is simple — replacing manual processes with technology should theoretically lower costs, speed up settlement, and reduce operational risk.
After the 2008 Financial Crisis, where manual processes at many firms broke down, creating systemic risk, regulators have been particularly keen for firms to accelerate their automation plans.
Some manual processes have already been automated as a result, but the significant legacy technology stacks at many big players have inhibited further change — it can be just too difficult to weld together the old and the new.
This now seems to be about to change — the COVID-19 pandemic made it clear just how unsustainable remaining manual processes are.
The growing acceptance of both data and technology in the cloud — particularly for middle- and back-office use cases — is also enabling change, such as the launch of compliance analytics in the cloud, and the use of tick history data in the cloud, such as Refinitiv Tick History in Google Cloud Platform.
The industry, and regulators, are beginning to talk about T+1 or even T+0 again.
6. Providing data that can be used to fuel innovation through AI and ML projects
FinTech and RegTech project teams are discovering that their technology can only operate as fast and as accurately as the data will let it.
Poor-quality data — with errors, missing fields, or incorrect normalisation — will prevent the technology from providing the right outcomes. Also, manually cleaning and normalising data for use in AI and ML projects can take up precious time and resources.
In fact, 54 percent of respondents to a recent Refinitiv survey said that poor quality data is a barrier to AI or ML adoption. As a result, there is an increased focus on ensuring that the data used in AI and ML projects is of high quality, and that it comes into the technology already cleansed and normalised.
Within organisations, this means ensuring there is proper data governance, which contributes to significant improvements in data quality. For external data, such as market data or reference data, firms are discovering the importance of working with data partners who they can trust to deliver the high-quality data that they need.
Connected and collaborative market data strategy
To successfully transform their organizations to meet all of these challenges, firms will require a more connected and collaborative market data strategy across the front, middle, and back office.
Within their ecosystem, market conditions will continue to remain challenging while regulatory change continues to increase. Firms will also need to engage with data partners that they can trust to deliver high-quality, normalised data sets that can fuel automation and innovation.
In short, while 2020 was a difficult year for market data teams, 2021 looks set to provide its own challenges and opportunities.