Wall Street & Technology is part of the Informa Tech Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them. Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

Trading Technology

07:55 PM
Connect Directly

Data First

With straight-through processing again on financial institutions' agendas, the focus has turned to data management as a first step.

As if pegged to the Dow, STP activity seems to wax and wane with the fortunes of Wall Street. And with coffers seemingly waxing, the once-abandoned acronym is again being uttered in boardrooms across the country.

Morgan Stanley is no exception. John Fleming, managing director of retail operations with the firm, is working on a straight-through-processing project that will validate, centralize and streamline the flow of data throughout his firm's vast enterprise.

Fleming, who is responsible for reference data across the firm's original Dean Witter broker-dealer and ultra-high-net-worth Morgan Stanley broker-dealer, says the project - Securities Master Service (SMS) - is essentially the creation of a central-data store that will feed securities data throughout the firm. "I refer to it as a library," he says.

Tim Lind, a senior analyst with TowerGroup, says the creation of a central data repository is a popular STP step on Wall Street right now. "The applications that Morgan Stanley is trying to feed with data traditionally have had their own security master or separate vocabulary of data used to feed each application. Most of that data in the database had been maintained separately by the users of that platform - so accountants would maintain their own security master file, order-management people would maintain their own security master file," he says. "So I could update a record in one system but fail to update it in 16 others."

According to TowerGroup research, says Lind, institutions like Morgan Stanley have 40 to 50 different applications maintaining security-master data. "To make sure all those databases of security information are synchronized, companies like Morgan Stanley are creating an infrastructure in which data from market data vendors FT Interactive Data, Reuters, Bloomberg and the like flow through a centralized infrastructure for ongoing publication downstream to all these databases," he says.

By creating such a consolidated container that synchronizes data throughout the firm, Fleming says Morgan Stanley will reap higher-quality data. But in line with the "garbage in, garbage out" concept, that can only be the case if the consolidated container has good data at the start.

Large financial institutions have many data feeds flowing into the firm, and disparities in the price of a security from one feed to the next need to be resolved before that information flows from the central repository to downstream applications. Lind says companies like IBM, SunGard and Accenture are positioning themselves to handle this for firms on a third-party basis.

"It's about trying to fix all problems with the data as far upstream as possible. As soon as the firm gets it from a data vendor, it invokes some validation process to say, 'Is this data complete - did Bloomberg and Reuters agree on this data attribute? If so, we have a high level of confidence this data is correct,'" says Lind. Morgan Stanley, Fleming says, works closely with Reuters, FT and Bloomberg, while also taking feeds from many others.

TAP Dance

To collect, reconcile and parse incoming market data in SMS, Fleming says Morgan Stanley worked with Vancouver-based TAP Solutions. TAP provides a reference- and business-data-management platform, and it automates the handling of vendor-data feeds and client-proprietary data sources through a standard feed-handling suite called TAPMaster. It then stores the data in a central repository with a single view that facilitates the distribution of data to any enterprise platform. The platform is designed on a Microsoft Windows, SQL and .NET framework.

TowerGroup's Lind explains that "TAP allows for data to be loaded from a market-data source into a container and then manipulated however Morgan Stanley wants."

Fleming wants Morgan Stanley's security master to manipulate more than just the basics. "I am expanding the definition of what a security master holds. So it's terms-and-conditions data, it's pricing data with history, it's corporate actions data, it's tax data and it's attributive data, things like sector style ratings - the things that are typically in investment management but not in the earlier generations of securities masters, which were about transaction processing," he says.

Morgan Stanley went live with the first release - Phase 0 - in May. Fleming says SMS will continue to evolve, with the firm beginning to synchronize containers from the library to its transaction containers in the first quarter of next year.

With SMS well under way, Fleming says he is now moving beyond Phase 0 to the next class of data, "which, in the earlier generations of computing, was account data, but it's now actually client data and prospect data and building strategies around that."

Finally, as a last piece of what he calls "the foundation," Fleming will look to weave documentation data into Morgan Stanley's STP environment. Documentation data refers to, for example, who can and cannot trade on a certain account, along with pre-trade qualifiers such as which stocks are to be purchased for a portfolio and which must be strictly avoided (e.g. tobacco stocks).

"That is a key element of STP," Fleming says. "It's all well and good that there are documents that talk about investment policies, but unless I figure out ways to encode that in a system, then every time I hit one of these things, I have to stop and someone has to check." In terms of timing, he says, "I've not even attempted to get my head around that yet."

Finally, Morgan Stanley is working on what it considers the last link in the STP chain - emerging data channels - which involves extending data to clients in an electronic, seamless manner.

"People don't actually want their statements anymore. They want to press a button and they want the money downloaded into applications like Quicken, and they want to do analysis on it, or they want to load it into Microsoft Money and give it to their tax adviser," Fleming says. "They don't want to be passing off paper statements."

Fleming is also developing strategies to automate the account client prospect space, which involves off-the-shelf contact-management systems like ACT and Microsoft CRM receiving information from the firm's account systems. He plans to have a pilot in the account client prospect space by the end of 2005.

STP and Green Bananas

So, does black on Wall Street balance sheets mean green for STP projects?

"I think if you're gravely ill, you're not going to be thinking about long-term plans or going out to buy green bananas," TowerGroup's Lind says. During the recent bad times, only projects with nine- to 12-month ROI time horizons had been getting off the ground - far too short a time frame for most STP endeavors, he adds.

Morgan Stanley's Fleming says, "At the end of the day, budgets are about how you efficiently spend finite amounts of capital. When the industry is hit with economic issues, people tend to focus on how they can actually sell more, and they are willing to risk inefficiency in terms of how they manufacture."

The reason for that, he says, is that no one has accurately quantified the costs of inefficiency in the trading process. "In my industry, everyone runs around and speaks about the number of trades that they processed, but no one can actually quote you how many trades have actually gone through on the first time, versus how many are complete rework, versus how many are partial rework," Fleming continues. It's only then "when they will truly understand the economics of the business that they are in."

Fleming says that the revival of STP at Morgan Stanley is related to better economic times, but he adds that getting the green light on such work is about more than just asking politely. "Now that the climate is better, people are willing to pay attention to these kinds of conversations, and it's through these conversations and framework that people are saying, 'Yes, I now get it and want you to move ahead.'"

Register for Wall Street & Technology Newsletters
Exclusive: Inside the GETCO Execution Services Trading Floor
Exclusive: Inside the GETCO Execution Services Trading Floor
Advanced Trading takes you on an exclusive tour of the New York trading floor of GETCO Execution Services, the solutions arm of GETCO.