Opening Cross: Where Have All the CDOs Gone?

Sometimes as I write my column, the TV is on in the background, and I catch glimpses of shows like What Not to Wear, where fashion gurus Stacy and Clinton advise disaster-dressers on finding the appropriate style and size of clothes for them. “Right-sizing” has also been a priority for the financial markets and data industries in recent years, with firms and vendors alike trying to drop dead weight and squeeze bloated frames into ever-shrinking margins.

And sure, the obsession with lean new looks (see last week’s column) may cut a dash on the catwalk, but these aren’t much good for any particularly onerous exercise, because fewer staff are rising through the ranks to gain comprehensive data expertise, since firms are outsourcing many of the basic functions. Yes, the industry is becoming malnourished when it comes to data expertise, at a time when there is more to do than ever for today’s data professional.

Data is no longer just about identifying, sourcing and implementing content and technology, finding ways to reduce firms’ ever-growing data budgets, or processing contracts and invoices correctly, or ensuring compliance with vendor and exchange contracts—with all their pitfalls—as well as domestic and international regulatory initiatives that impact data use: It’s all of the above, and more, and the development of tools like Spearhead and Partners’ Exchange Guide Manager and JCV Investment Systems’ Audit Genie (see stories, this issue) demonstrate the importance of being able to automate as much of those complex data management processes as possible.

But while these tools can assist data professionals, they still require those professionals in order to function effectively. “It’s a different world from even three years ago, and we’re trying to reposition ourselves to stay relevant,” says Ben Mendoza, chief executive of MDSL, which is re-tooling its MDX consulting arm into “a center of excellence for market data management,” to take advantage of this new environment. “We need to offer a full ‘solution’ because in the old days, I could sell a product and banks would have the people to use it, but that’s not the case anymore.”

I frequently hear concerns that firms may have cut too close to the bone, leaving themselves ill-prepared to handle any uptick in business, any increases in data requirements, or the demands of any new audits and regulatory compliance.

David Berry—who is running MDSL’s training, part-time—says that being an expert on all of these issues is simply the requirement for a market data professional in today’s markets, but I can’t help but think that such critical responsibilities shouldn’t force data staff to become a jack-of-all-trades, but that this overall responsibility should fall to someone like a chief data officer with full executive responsibility, to whom each specialist area would report (including outsourced functions, where appropriate). Once, these roles—more commonly associated with reference data and enterprise data management—were flavor of the month. But there’s no reason they should be constrained to these areas, and not be expanded to cover all aspects of a financial firm’s data. Sadly, if anything, the number of CDOs in financial markets appears to have shrunk.

Maybe firms would say they can’t afford the luxury of creating such a position. But regulatory compliance isn’t a luxury—it’s a requirement. And market data isn’t a luxury—that’s a requirement, too. And while compliance with exchange and data vendor policies may not be regulated, they are still requirements—unless you want to face some stiff penalty fees.

So, will 2012 be the year of the chief data officer (or insert equivalent title), or will it be the year that we see some firms self-destruct not from risky bets on debt or derivative instruments but from bad data management?