Respondents to a new Refinitiv survey about market and reference data strategies at financial services firms say their firms’ strategies need updating, which will require drastic cultural changes in their organisations, and a rethink on how to use data management to better leverage their investment.
- Nearly three-quarters of survey respondents say that market data management strategies have not changed in the past 10 years and are due an overhaul in order to extract proper value from the investment.
- More than 80 percent say that regulators are going to be putting an increased focus on data governance over the next few years.
- Some 84 percent say they are either putting in place an operational resilience framework, or they are investigating taking this step.
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Financial services firms are struggling with a range of challenges as they seek to evolve their market and reference data strategies to support the changing business – by delivering more revenue and boosting efficiencies, according to a new report from Refinitiv.
According to the report, Connected Data: Unlocking Hidden Value in Market and Reference Data Across the Organisation, 74 percent of survey respondents say that market data management strategies have not changed in the past 10 years and are due an overhaul to extract proper value from the investment.
In addition, 76 percent of survey respondents say that improving how they manage market and reference data will require drastic changes in their organisation, technology or strategy. Also, 67 percent say there is a lack of understanding in their organisation as to how firms can most effectively leverage their spend on data.
For the report, Refinitiv conducted a survey 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.
What are the main market data challenges?
According to the executives surveyed across all types of financial services firms and geographies, the top five challenges in managing market and reference data are:
The first is data governance, to tackle issues such as data consistency and data quality challenges. Regulators are focusing on data governance too – 81 percent of survey respondents expect an increase in regulatory attention in this area.
Also, survey respondents talk about shortcomings within their firms’ data governance programmes such as inconsistency of the data used by the front, middle and back office (34 percent); inconsistency of data sources/vendors between the front, middle and back offices (32 percent); and no view of data licence conditions (25 percent).
The second challenge for executives is meeting the demands of the use cases that are emerging within their organisation, including artificial intelligence (AI) and machine learning (ML).
AI and ML issues concerning market and reference data include data security (38 percent of respondents say their organisations experience challenges with this), data quality (32 percent), and having the right data (31 percent).
The third challenge is fostering the necessary cultural change. Firms don’t just face technology and data challenges when revising their approach to market and reference data – they face serious cultural ones, too.
In fact, 78 percent of those surveyed agreed that integrating new market and reference data strategies will require a completely different mindset and attitude from employees. Also, 64 percent of all respondents agreed that there is a reluctance to change the way their firm operates because of the disruption that it may cause.
How can expectations be managed?
So, the changes that firms need to make to their market and reference data strategies – to deliver the revenue and efficiency they need to thrive – are substantial. However, respondents may be overconfident when it comes to how well they think their investment priorities regarding their market and reference data compare with their rivals.
Nearly seven out of 10 say that their investment priorities are either very competitive with their rivals or slightly competitive with their rivals.
Sovereign wealth organisations (43 percent very competitive versus our rivals) and hedge funds (34 percent) are the most confident, while interdealer brokers and brokers are the least confident, with 12 percent each saying their plans compare poorly with their rivals.
While firms may be investing, others are clearly investing too, and so firms need to make sure that their programmes are delivering the competitive advantage they want to achieve.
How to enhance market data strategies
So, what are firms focusing on to enhance their market and reference data strategies over the next year or so?
It’s clear that firms are planning to invest in more data – particularly to enhance data for AI and ML use cases (36 percent) and to expand coverage/geography (34 percent). Firms are set to spend on more market data feeds, including both direct feeds and aggregated feeds, as well as in reference data, according to the survey results.
Firms are also seeking to invest in enhancing their data management infrastructure.
First, they are moving more data storage and data use to the cloud. Popular use cases reported by front office respondents include powering trading and risk systems with data and analytics (41 percent), executing trades and performing execution analysis such as transaction cost analysis (TCA) (36 percent), storing historical data (39 percent) and using machine learning to detect trading patterns (33 percent)
Secondly, firms are investing in data governance, including the infrastructure that supports data governance. This includes data entitlement solutions – 26 percent of survey respondents already have this software in place, while 42 percent have plans to implement an automated solution. Using automated data entitlement software can help firms ensure they remain compliant with their contracts, as well as track data access across the business.
The third step firms are taking to improve their market and reference data strategies is boosting their operational resilience. Some 84 percent say they are either putting in place an operational resilience framework, or they are investigating taking this step.
Other activities include either presently undertaking or investigating ‘ensuring greater monitoring’ (94 percent), ‘increasing cloud and off-premise data storage’ (85 percent), and ‘increasing data coverage’ (88 percent).
Increasing operational resilience can enable the firm to continue delivering for customers during challenging periods – such as the recent COVID-19 pandemic – and also embrace opportunities that can arise out of changing circumstances.
In short, financial services firms are recognising that their market and reference data strategies have to evolve if they are going to successfully meet the challenges that they are confronting today.
Firms are investing in more data, and are beginning to explore the need for cultural change. They are also acknowledging that it is necessary to invest in improving their data management, to both increase revenue and boost efficiency.
Stepping back and looking at the big picture, it’s clear that financial firms are going to see significant evolution within their market and reference data strategies over the next few years.