In the mid 2000’s I was responsible for a team that provided mission critical pricing for fixed income asset classes. Many clients were using this mark-to-market pricing to calculate an end of day NAV for their portfolios. The needs for timeliness and accuracy were absolute, and business continuity and disaster recovery were mandatory. Part of the business continuity plan was to require each member of the team to work remotely at least one day a month, to ensure that the technology and systems were in place to deliver pricing without delay or interruption.
Connectivity, cloud adoption and sophisticated data and delivery are no longer optional
Today, the ability to work remotely is no longer an optional convenience to facilitate uninterrupted “heads down” work, or test disaster recovery. In the face of COVID-19 quarantines, remote work has become a necessity. The sophistication of current communications technology, analytics, models, and cloud delivery have been put through stringent paces in recent weeks. This is appropriate given that the ability to communicate and continue to deliver without fail impacts every stage of the financial services workflow.
Trading desks, originators and other front office professionals need accurate, timely data, connectivity, news and other vital elements to function and execute. Risk, compliance and portfolio management professionals need analytics, increasingly sophisticated data sets and state of the art, fit for purpose systems to continue to satisfy regulatory requirements, and ensure adequate capital levels to reflect their risk positions.
Settlement, cash management, corporate actions departments and other middle and back office functions need terms and conditions, M&A and stock split/consolidation data, earnings, accurate symbology and other key datasets to perform their functions and minimize expensive trade failures.
At the apex of this all, market data professionals need to ensure that each of their constituencies are receiving the best and most relevant data, systems and tools, deployed when and where they require them. Permissioning, data usage rights and licensing must all be tracked, and effective delivery is needed to support mission critical operations.
Expectations are higher
The financial services landscape has changed dramatically over the last decade, as have the challenges. Global regulatory requirements have multiplied and increased in complexity, and the systems needed to ensure compliance have had to be adapted accordingly. STS, Solvency II, IFRS 9, Basel III and MiFID II have created operational and compliance requirements globally for both buy side and sell side players, trustees, servicers, brokers, and all other parties in the transaction chain. Each geographic region and industry sector continue to have their own progression of regulations. Given the current economic climate, it is unlikely that this trend will slow.
Other forces include the reality of cyberterrorism, and increased calls for data privacy. Big data in financial services is no longer a new concept, but what is changing is the urgency for organizations to mine vast sets of unstructured and semi-structured data. This is not only to ensure compliance with data privacy laws, but to also ensure that maximum value is derived from these large data sets.
Use of alternative data has also become increasingly prevalent. Deployment of highly specialized data in targeted verticals empowers market participants to really understand the fundamentals of a given sector and investment. This need is evidenced by the steady stream of market data providers that have emerged in these sectors, providing nontraditional data such as social/sentiment data, credit/debit card data, geolocation tools, application usage, survey data, data from sell side institutions and others. Artificial intelligence capabilities have and will continue to play a key role here.
Additionally, financial services firms are experiencing increasing competition from new and existing sources. Client expectations of having an excellent personalized experience have become amplified due to innovation from big online retailers, and digital multichannel marketing fueled by large and innovative data sets. At the same time, nonbank disruptors have become more prevalent in the retail and insurance sectors, creating heightened competition and underscoring the need for advanced technology.
Many forces are converging at the same time and are here to stay. These include new ways of working, higher expectations in the way of sophistication, continued stringent regulatory requirements, nontraditional market disruptors, an increased emphasis on digital marketing, new data sets, and new ways of using existing data sets.
Market Data and Financial Technology Needs are Countercyclical
What is so interesting and often not widely recognized is that the need for market data and technology is countercyclical. During the 2007-2008 subprime financial crisis, the challenges of financial institutions multiplied exponentially. This led to an increased need to more fully understand and evaluate the risk in their portfolios, and ensure compliance with the steady flow of new regulations. Even in the face of budget pressures, the demand to price illiquid instruments and exotic derivatives became pronounced. The need for systems with the ability to track and execute in order to move forward in a compliant and responsible way also grew. These are trends that have largely continued.
As we approach another economic downturn, one thing is certain: Market data consumers will continue to seek out ways to leverage technology and use more sophisticated data management tools to address the inevitable new challenges. Risk and regulatory compliance requirements have become far more complex in the last decade and are continuing to grow at a rapid pace. Liquidity and transparency will be vital to managing capital requirements and moving toward recovery, and the connectivity and market intelligence that power these new requirements will continue to grow and be much in demand.