The world of market data is encumbered by a multitude of complexities. Not only is the business of data complex, but so is the data itself, and so too are the underlying markets and instruments that require such complex datasets. So key to preventing this complexity from spinning completely out of control is the ability to take these complexities and make them—from datasets themselves to business practices—as simple as possible.
For example, Aegon Asset Management is simplifying its data procurement and management structure under a central body across its various subsidiary investment firms, allowing the firm to take advantage of global licensing agreements for data and IT Services, and to optimize its data use across those contracts, which could not be achieved without a centralized sourcing and management function.
Also seeking to simplify data administration is interdealer broker BGC Partners, which has introduced a new policy that charges fees for data types and classes of data usage not previously fee-liable. Now, it may well be that BGC has been frustrated by abuses of its data in the past by firms taking advantage of its policies—which, sources say, have never been formally set out in writing until now—and is simply responding to a need to protect its intellectual property, but end users say the broker, known for its star-studded charity days, is feeling less charitable towards clients of its data products. Whatever the intent, two things that traders and data managers hate are change and fees, so predictably, the move is getting some push-back from disgruntled end users.
Indeed, it is end-user demands for products that simplify complex datasets and hence their workflows—improving (in theory) their ability to do their jobs—that are driving product developments such as Denver, Colo.-based analytics, data and trading technology provider CQG’s new CQG Select stripped-down data and charting terminal, and Thomson Reuters’ Watchlist Pulse application—a component of its Eikon terminal that highlights positive or negative changes across a number of the vendor’s key datasets and indicators. With everyone looking to new datasets and analytics to provide insight and advantage, this is inevitably resulting in more complex analytics, which—when combined—require similar simplification.
In the years since the financial crisis that revealed shortfalls in the complexity of how the industry prices and values securities—compared to the complexity of the assets themselves—financial instruments have arguably become even more complex, while the complexity of services to address them properly has also increased proportionally. The result is that the complexity of these processes often exceeds firms’ ability to understand their underlying requirements. The risk here is twofold: on the one hand, firms leave themselves open to being traded against by rivals with more accurate valuations; on the other, they risk the wrath of regulators for any reporting or compliance failures.
“The more complex the assets you’re dealing with, the more likely that you’ll face valuation risk,” says Ian Blance, managing director of Voltaire Advisors, a consulting firm he set up to address the complexities surrounding valuation risk. “One thing that is becoming more apparent since the financial crisis is that pricing services are not a panacea for [the industry’s] problems,” Blance says, warning firms that the simple truth is that outsourcing their pricing needs does not mean they can outsource responsibility for compliance.
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Bill Murphy, CTO of Blackstone, once again joins the podcast to discuss the private equity firm's new offices, designed to house its innovations team.Subscribe to Weekly Wrap emails