Risk and regulatory requirements, instruments and products have become more complex, and more transactions are automated today than ever before. In this context, market data has become an increasingly critical component for investment banks, touching nearly every aspect of their business.
Recent efforts in belt-tightening across the investment banking industry have exposed costly inefficiencies in market data management, including siloed procurement, ineffective demand/usage management, growing data costs, and inadequate technology for processing and analyzing the growing volume of data.
As a result, many organizations are beginning to recognize that market data management is a strategic function that requires the same level of attention, efficiency and governance as other key areas of operations. Accenture experience suggests that investment banks that have taken initial steps to consolidate data procurement have seen overall savings of up to 20 percent—and additional optimization efforts could potentially double that figure.
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Source: Burton-Taylor International Consulting LLC
As the number of data vendors has grown and the blurring of offerings for external data feeds clouds the landscape, market data management has become a true challenge for investment banks. Ongoing regulatory change and business pressures related to cost control and compliance only intensify the challenge. Faced with ever-growing regulatory burdens, new data sources, and new financial instruments and products, chief operating officers (COOs) are asking themselves how they can control their data destiny.
Many investment banks are finding themselves unprepared to deal with the key issues at hand:
A recent trend in the industry has seen a number of organizations taking a holistic approach to market data and market data technology operations. Their goal is to develop an overall strategy based on a “fit for purpose” methodology, meaning they establish requirements and then identify market data sources. Emphasis is placed on how market data is licensed, with preference given to sources that license solely by instrument (as opposed to instrument and business activity). In this way, an investment bank avoids paying for a single instrument for a single user and application multiple times over.
The pursuit of cost reduction using traditional methods has often adversely affected the ability of investment banks to secure additional cost savings in the long term. One of the more popular cost-saving approaches in recent history has been vendor consolidation, with some organizations going so far as to rely on a single supplier. An unintended consequence of this approach is that companies are left with little, if any, leverage to negotiate lower prices. A more effective approach may be found in leveraging new technologies to consolidate distribution throughout the firm while maintaining a broader data vendor landscape.
Investment banks need to be aware of what data they require, which applications use it and how it is licensed in order to recognize savings. Simply reducing the number of data sources is no longer producing the level of savings it has in the past; in some cases, it is even having the opposite effect.
Investment banks need a comprehensive market data transformation plan that focuses on creating recurring value and developing collaborative and sustainable relationships among market data vendors, IT and business units. That means accepting that contract compliance audits are the new norm and will be part of the ongoing vendor-client relationship.
A full internal data audit is the first step in identifying usage duplication and redundancies. Ask yourself:
CIOs and COOs need to ask themselves who is in charge and adopt a clear strategy to manage vendors—or risk being managed themselves. The following questions need to be considered:
Trying to “do more with less” won’t cut it as a solution. Being armed with real knowledge of your market data environment is the only way to achieve success.
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