Complexity or Simplicity - The Data Quality Question

To be complex or not to be—that seems to be the question for the financial data management industry.

Considering how best to improve data quality has become a tug of war between two contradictory impulses: seeking simplicity versus understanding and managing greater complexity in data. This became evident in our webcast on data quality issues, covered in "Quality's Matrix."

The complexity arises because of the dual sources for master reference data-external providers and firms' internal trading systems-as Informatica's Peter Ku said in the webcast. A long-term, enterprise-wide approach is necessary to address these opposing sources and achieve consistency, he added. On the other hand, securities and counterparty data are being merged to make data simpler, and thus improve quality by removing chances for errors and confusion.

Identifying counterparties has been part of the legal entity identifier (LEI) efforts, which have progressed lately, helped by the arrival on February 12 of European Market Infrastructure Regulation (EMIR) trade-reporting requirements for assigning LEIs in derivatives trades in European markets.

HSBC's Hany Choueiri notes in "Europe's LEI Countdown" that registering for LEIs is not difficult, and that standard documents with information on what pre-local operating units (pre-LOUs) need to be used can be distributed so that clients can do it themselves. But others, such as Silvano Stagni of consultancy Hatstand, say firms—especially small ones—are unprepared to meet next month's EMIR-mandated deadline.

Complexity is increasingly evident in the LEI space, however, with the ongoing certification of more distinct national LOUs by the LEI Regulatory Oversight Committee (ROC). Five more markets gained ROC endorsements in recent weeks. It remains to be seen whether the LOUs will work together and keep the LEI registration process as simple as some believe it can or should be.

While EMIR might be adding complexity on the LEI front, it seems to be getting a positive response for simplifying other data matters. The industry is starting to see results from the EMIR mandate put into motion on September 15 that counterparties agree on portfolio reconciliation and dispute resolution methods. The International Swaps and Derivatives Association created a protocol that aims to achieve this, and which, according to Interactive Data's Anthony Belcher, is doing so by making dispute resolution clearer, with concrete, identifiable steps.

The common thread in all these initiatives and requirements is that on the face of it, their aims are to make it simpler to generate and identify accurate data and, by extension, make it easier to manage. Whether the data is identifiers, more general securities and counterparty data or entire portfolios, the complexities involved in following these initiatives vary in the level of challenge they present to data professionals.