Although regulators' top priority is to mitigate or contain future financial crises, "Regulators won't tell you you need to slow down if you have the right brakes," said Stephen Bruel, research director, securities and capital markets at TowerGroup at a briefing hosted by Sybase this morning. The right brakes, he said, might include accurate data and the ability to calculate value at risk instantly, in real time.Bruel expects the four biggest impacts of tighter regulations on Wall Street data practices to be these:

1. Data management overhauls. Capital markets firms will be well-served by improving their access to data, their taxonomies, their data integrity and their data models, he said. This would help with risk assessments, stress tests, liquidity calculations, collateral management and derivative valuations. Stress tests will become more stringent next year; firms will need to come up with better data and reports to conduct these tests. "Firms themselves will have to run and own them," Bruel said.

2. Improved risk management. Bruel expects the Federal Reserve will take on the role of systemic risk regulator and attempt to look at risk systemwide across entities, products, asset classes and activities (such as short selling and sponsored access). Wall Street firms accordingly will need to include credit, market and operational risk in their risk management practices and technology platforms. "Although complex and expensive, data warehousing and management projects can resolve multiple issues at once: efficiency and responsiveness to the regulator and improvement in the institution's own ability to harness and act on risk data," he said.

Asked about the National Institute of Finance that several capital markets organizations are trying to form that would gather daily trade information from all Wall Street firms to give regulators a system-wide view of counterparty relationships and trade positions, Bruel was unenthusiastic. "Quasi-regulatory bodies often don't have the authority to get anything done," he said. "Clearing is the key to transparency," he said.

3. More thorough derivatives valuations. Derivatives will be subject to scrutiny and requests for more reporting, stress tests, scenario analyses and higher capital requirements, Bruel said. He noted that in the markets, custom products may be considered illiquid, thus there will be a trend toward standardized products. "As in Darwinian evolution, some products such as CDO squared will die a natural death," Bruel said. "A structured product you might have approved in an hour two years ago, now might involve meetings with several lawyers." Regulators will start trying to look at the systemic risk of products like CDSs, which grew 80% per year for several years with little regulatory oversight.

Derivatives valuations will call for more sophisticated tools. "TowerGroup believes that tools such as in-memory databases and complex event processing should be applied to risk management activities including valuations of complex instruments and counterparty exposure analytics," he wrote in a recent report, "Regulations' Impact on the Capital Markets and Technology Priorities." He also believes regulators will push more centralized clearing of derivatives.

4. Improved operations data management. Confirmations, affirmations and middle and back office processes should all be under the risk management umbrella. Better operations data will ensure the transactions that feed position and exposure information are correct. Derivatives processes will have to become more standard to alleviate operations risks, Bruel said. Risk management will become a competitive differentiator for Wall Street firms over time, Bruel said.