The Opaqueness of IBOR

If you're a regular reader of Buy-Side Technology, there's no doubt that you've read a lot about asset management firms either implementing ─ or venders unveiling ─ a fancy, new investment book of record (IBOR) platform.

For the April issue of Waters, my colleague Jake Thomases wrote a deep dive on BMO Global Asset Management's near-three-year implementation of an IBOR. In January 2011, BMO began the brainstorming period that would eventually lead to the decision to build an IBOR. This was in response to the tangled web that resulted after BMO bought M&I Bank and needed to merge it with BMO Harris Bank, BMO's US affiliate, and the Toronto-based mothership.

In January 2012, SimCorp joined the project to help the now-$128-billion asset manager build the IBOR and bring together the data platforms of the three institutions' investment management arms. SimCorp's involvement in the project lasted until August 2013, and even now BMO is continuously tinkering with the system.

It's an excellent read and it's about as informative an article as you'll see as to what truly constitutes an IBOR. And as Jake notes, BMO has to be considered an early adopter of an IBOR, even though the term is believed to have started floating around in the late 1990s.

From the story:

The scope of what constitutes an IBOR has been in constant evolution for decades. Barclays Global Investors (BGI) has taken credit for inventing the term around 1999. The transition from user-developed tools to an enterprise IBOR barely got off the ground in the ensuing years, either because of a lack of need or a lack of understanding of the value of holistic, intraday position day. By beginning its adoption process in January of 2011, BMO could fairly be called an early adopter, deserving of both the acclaim and the scrutiny that accompanies such a title.

A Land of Confusion
I recently had a contact call me and ask me this: "Why the hell is everyone all of a sudden talking about IBOR? Is this something new, or what?"

The answer's complicated. The technology is both new and old, and because there isn't an exact industry definition around what entails a true IBOR, there's also a lot of confusion. Mind you, the person who asked me that question has been working on the buy side for about 20 years. If he hadn't heard of the term until recently, then it's clearly not a ubiquitous idea. Another source told me that he was building his own personal IBOR using Lotus 1-2-3 back in the mid-1980s. So the definition is loose.

Here's what I believe about the birth of IBOR and its standing in today's environment: BGI created the modern-day IBOR (though it did not extend to the middle or back office) even though firms have been building smaller IBOR-like systems for years and years. That's my opinion, though it may not be fact.

The reason that the term is now taking off is twofold. First, 2008 showed that firms clearly did not have a true hold of their data, especially not on an intraday basis, much less in real time. As a result, data management platforms came into extreme demand once IT budgets were at least semi-restored.

What's happened though is that if a vendor wants to land a major asset manager, then they need to differentiate their wares in an increasingly competitive marketplace. As a result, vendors on the buy side have been quick to attach their names to IBOR for fear of being left without a chair when the music stops.

This is not to say that there aren't any vendors out there with an IBOR solution. Just read Jake's piece looking at BMO and SimCorp for proof that there are vendors that have a solution that is specifically geared to IBOR. But just like how you constantly hear vendors talking about their "Big Data Solution!" or their "XYZ-as-a-Service Cloud Platform!", you will also increasingly see vendors rolling out their new "IBOR Platform!".

And some of those platforms will be legit. But the problem for asset managers is that they not only need to define what entails an IBOR, but they will also have to be hyper-critical of who might be selling them a repackaged data solution that does not constitute a true IBOR.

BMO's project was unusually complex in that it was merging three disparate institutions after acquisitions. Not every firm is going to face that challenge. But it's also clear that a true IBOR is not a plug-and-play solution, either. There is a good deal of internal work that needs to be done and only then should a third-party be brought in to see you home.

Otherwise, you're probably just putting lipstick on a pig.