Michael Shashoua: Steadying Data Flows

With the investment book of record (IBOR) gaining steam, the question is whether its implementation should fall on the front or the back office. IBOR is a reference data beast, so one might think it would be a back-office responsibility, and given the nature of front-office IT resources, or lack thereof, it might be a tall order for front offices.

Sylvain Pendaries, vice president of front office and analytics at the Public Sector Pension Investment Board (PSP) in Canada, says the $76 billion fund only has two developers on its front-office team. Most of the front-office is analysts, quants and portfolio managers.

Resources
As a result, PSP and similarly structured front-offices must either draw on IT resources elsewhere in the firm, or outsource. Pendaries says the prerequisite for deciding whether to buy or build an IBOR lies in the clarity about roles and responsibilities in the firm throughout the trade lifecycle. “Once you know you have no liabilities, then you can look for outsourcing solutions,” he says. “But don’t do that unless you know the vulnerabilities in your organization.”

A firm’s front office may already be satisfied with the systems it has, says Eagle Investment Systems’ Mal Cullen. An IBOR project can require implementation of multiple systems in succession, or leveraging of systems investments over time. As Bob Leaper of DST Global Solutions explains, such projects stand a better chance of gaining traction if they are divided into shorter-term phases of three to six months each, with concrete results shown after each stage.

Another inherent challenge with an IBOR is the need for data warehousing to accommodate the large amounts of data necessary to maintain such a resource. The real-time nature of front-office needs means systems must be capable of delivering intra-day updates to and from the IBOR, keeping up with transactions that are happening.

The presence of any complications mean EMIR reporting requirements aren’t going to be completely painless.

An IBOR will have to be operated and managed by the back office, which has more time and expertise. That does not absolve front offices of responsibility, however—they must be sure to have a handle on IBOR output and work with their back-office colleagues to keep IBOR input and output flowing.

Identification Complications
On one front, with IBOR, the industry is working on getting a better handle on its data. On another front, outside the industry’s control, the implementation of European Market Infrastructure Regulation (EMIR) means complications for data management.

The Feb. 12 start of EMIR provisions requiring reporting of derivatives trading information to a central European repository caused concern that a backlog of pre-legal entity identifier (pre-LEI) registrations would occur.

In major markets including the US, UK and Germany, pre-local operating units such as the Depository Trust and Clearing Corp. (DTCC), Swift, WM Datenservice, and the London Stock Exchange (LSE) said there won’t be a problem with increased turnaround time for issuing pre-LEIs. WM’s Uwe Meyer adds that times will shorten greatly with work the utility is doing.

At least for some trade reporting in the first days EMIR was in effect, processing went smoothly. The IntercontinentalExchange, serving as a repository, accepted 4.5 million filings on Feb. 12, which included all mandated data attributes, which were validated when submitted. Yet for the DTCC’s London repository, clients could not access reports on the first day. Unique trade identifiers mandated under EMIR are creating confusion about their format and sourcing.

It will take more than the first few days to determine how well EMIR is working and how well the industry is meeting its requirements. Launches of any new capability inevitably have some glitches at their outset. Yet the presence of any complications mean EMIR reporting requirements, especially issuance of pre-LEIs, aren’t going to be completely painless in the way proponents promised.