Data as Regulatory Inoculation

Competent data management, enhanced by centralized data analytics, improves the credibility of the industry's argument that regulators don't understand what really makes for transparent and well-supervised markets

In sessions at Waters USA earlier this week about budgeting for IT with new regulation in mind, and about the use of enterprise infrastructure for consistent pricing and risk analytics, the financial industry's concerns about regulators seemed a bit premature considering the issues with data management still to be addressed or solved.

Compliance with the US Foreign Account Tax Compliance Act is easily achievable, said Scott Condron, managing director and chief technology officer at BlackRock, who spoke in the budgeting session. Yet Condron put forward the idea that market regulation overall is what will restrict the ability of individual investors to access and benefit from capital markets. "The ability to have product that meets their income needs is being restricted by regulations crafted by people who do not understand capital markets, market structure and access to liquidity – and what actually represents best execution or fairness," he said.

No matter what the regulation or rules that still come out of the Dodd-Frank Act (Condron pointed to 325 rules yet to be written to codify the law), inevitably more regulation will mean a greater level of supervision and transparency can be expected, said Satyam Kancharla, senior vice-president of client solutions at pricing and risk analytics provider Numerix, who spoke about pricing and risk analysis in enterprise infrastructure.

So the securities industry ought to be able to track its trading and identification data with a precision equal to Wal-Mart's capability in tracking inventory throughout its distribution from producers to its stores, according to Kancharla. "The industry in general... is typically siloed by business and asset class," he said. "All these stakeholders have various ways of accessing these systems. Analytics are split into islands that live in these different silos."

This fragmentation contributes to the industry's difficulty in tracking data, and by extension, centralizing analytics, explained Kancharla. "We need to know exactly what our positions are and exactly what our exposures are at any time of day," he said.

With this not yet accomplished, can industry professionals be considered credible in critiquing the knowledge of regulators? Without an accurate, centralized organization and handling of data to support or pave the way for centralized analytics, how does the industry claim proper supervision of the trading in question, and transparency to investors as well as regulators? If these questions are answered, and data management is on target, then the industry has an unassailable case that it accurately and fairly serves investors.