Third Time’s the Charm?

With no associated profit stream, there’s also no competitive advantage to repeating those same thankless tasks at each individual firm across the industry, which is why certain aspects of reference data make perfect sense to be managed via a utility model where everyone can share in the cost efficiencies and scale of one large entity performing the same tasks on everyone’s behalf, rather than every firm wasting time and resources duplicating what everyone else has already done. Or, to put it another way, “streamline redundant, costly activities that are mandated for industry participants,” that add burden without adding any value, says Amy Young, managing director at State Street. In fact, unlike keeping these functions in-house, offloading them can contribute to profit streams, because it allows firms to reallocate resources to product development, customer service, and other revenue-generating areas.

Of course, SPReD isn’t the first utility to come along in the reference data arena: SunGard and a partnership between Accenture and Asset Control have both dipped their toes in the utilities pool and floundered. But that doesn’t mean SPReD will share their fate. First, because utilities are actually accepted and widespread elsewhere—Swift or DTCC, for example—and second, because SPReD’s founding partners Goldman Sachs, JP Morgan and Morgan Stanley each have a vested interest in its success, if only so it continues to provide them with the benefit of offloading costly and resource-intensive parts of their reference data management. If these bulge-bracket firms can cajole just a fraction of their clients and counterparties to also use SPReD, they can probably feel pretty secure in their investment and confident of continued service.

But takeup isn’t the only challenge to success: The utility model also depends on the vendors who provide the underlying information being willing to play ball and be flexible with their commercial models if the utility is to achieve economies of scale. So far, Thomson Reuters is on board. The question is, say end-users, will other vendors follow? 

Max Bowie, Executive Editor, Inside Market Data and Inside Reference Data