Data Management

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Becca Lipman
Becca Lipman
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Accuracy in the Financial Data Supply Chain

Some of the best-practices from the retail world's physical supply chain, including data standards and visibility, can be leveraged for efficiency in financial services.

Financial firms are looking to data standards for cost savings and efficiency in meeting regulatory compliance, says GoldenSource, provider of open enterprise data management (EDM) for financial institutions.

Improving standardization across the industry can be as simple making sure a bond yield communicated by one institution is interpreted the same way by another.

To convey how big the problems of communication are within financial services today, European repositories recently reported that up to 60 percent of the derivative trades reported under the European Market Infrastructure Regulation (EMIR) cannot be matched with their counterparts' reports of the same transactions.

This astoundingly low match rate is largely credited to the room for interpretation of the technical standards and protocols. Risk Magazine reports slow adoption of legal entity identifiers (LEIs), misuse of unique trade identifiers (UTIs), or simply using an ampersand in one report and “and” in another can cause a headache for the repositories.

That's a bad sign for the US SWAP data repository, which requires only one party to report the transaction on behalf of both parties -- how can the reports be trusted? Truly, repositories are facing the largest data challenge, dealing with different companies speaking in different languages, but the inefficiency from different formats is a problem throughout financial services.

The FIBO (Financial Industry Business Ontology) standard is helping to address miscommunication and maximize efficiency across the industry. FIBO is an industry initiative facilitated by the EDM council, a trade association of more than 100 global banks and other industry participants, working to establish a common language, including defining industry terms and a reference point for data alignment.

GoldenSource is a founder of the EDM council and has mapped its platform to FIBO. This allows any information a firm is using within its organization to be extracted with a FIBO tag attached for communication between different departments or outside the firm. This includes transaction, risk exposure, security, front office to back office communications, or OTC swaps where one party needs to report the transaction on behalf of both parties.

A lesson from retailers
According to Stephen Engdahl, senior VP of product strategy at GoldenSource, when it comes to counterparty reporting and building standards there are many best-practices from other industries that financials can draw on, particularly from retail:

"Consider the retailer’s supply chain. They’ve managed to gain agreement on communication protocol, standards, things we also talk about in financial services, but they've been able to automate across institutions to a very high degree to a point where retailers and distributors and manufacturers can communicate. They don't just optimize within their piece of the process, but rather they’ve really gotten things so tightly wired that they can prevent stacks of inventory in physical warehouses."

He adds that many suppliers have developed “just in time” manufacturing and shipment to the retail point of presence, whereas as soon as an item is purchased or ordered it sets in motion a sequence of automated events that transmits right back to the supplier about inventory in each shop. “That’s giving a lot of visibility to the supplier and downstream visibility into the internal operations of the retailer. You couldn't optimize for it if they kept that information private. There’s a lot more openness.”

“The time is right for this.”
Like the retail model, the view that information must be kept proprietary is rapidly fading away in exchange for this industry efficiency. Growing interest in extracting more value from quality data used for compliance is furthering interest in data standards. 

Engdahl says he’s seeing lot of service providers looking to launch shared service for data, and has noticed a significant jump over the last year in the RFIs and RFPs for FIBO mapped platforms. “This type of thing was once every two years or so, usually somebody just putting their toes in the water to explore what's going on in the industry and what services are available -- now it’s become a couple each month. This is still very early stage of this being put into practice, so the interest is there and the exploration is there…

“The industry has not been ready to look at how we can make systems better across institutions until now,” says Engdahl. “The time is right for this.”

Becca Lipman is Senior Editor for Wall Street & Technology. She writes in-depth news articles with a focus on big data and compliance in the capital markets. She regularly meets with information technology leaders and innovators and writes about cloud computing, datacenters, ... View Full Bio
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Becca L
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Becca L,
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8/25/2014 | 10:12:19 AM
A retailer's approach
Retailers have taken a holistic view in the entire process, and using standards have optimized not just within one participant, but across participants to give more efficiency to the industry. In financials, we see the beginning of this efficiency in concepts like shared service utilities for data and managed services that standardize processes that every institution needs to d
allang119
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allang119,
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8/28/2014 | 11:26:19 AM
Re: A retailer's approach
Your observation of retailers as a leader that the financial supply chain should follow is exactly why my company, Financial Intergroup introduced the global merchant/manufacturer standard's setter GS1 to the financial industry as the financial crisis unfolded and subsequently unmasked the failure in our industry to have unique and global identifiers. GS1 facilitates the unique and standard codes found in bar codes, RFID tags and QR matrices. They have been at it for 40 years bringing straight through processing to the global trade supply chain and making firms such as Walmart, FedEx and Amazon possible.

The lesson they teach, and that we incorporated into our approach to global ID's for the financial supply chain is to have the codes themselves registered by those who are to be identified, whether it be a product where the manufacturer (an issuer of securities in our industry) provides the code or the enterprise itself (the legal identity of the supply chain participant as we are attempting to do with the LEI). The registrant owns and assigns the code not an intermediary operator. Getting this right is the first order of business.  See http://www.wallstreetandtech.com/security/lei-+-cou---gleis-/a/d-id/1297916

                                                                                                                                  
Greg MacSweeney
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Greg MacSweeney,
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8/26/2014 | 6:08:41 AM
FIBO
The EDM Council has done a lot of great work on FIBO, which is a pretty important document for the industry (OK, it's more than a document). Granted, FIBO is just another acronym to add to the mountain of financial services acronyms that are already in use, but the ontology is much needed.
allang119
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allang119,
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8/28/2014 | 11:27:50 AM
Re: FIBO
Given that all identities of products and market participants are first defined in documents (articles of incorporation, prospectuses, trust agreements, et al) it may be best that XBRL, the XML tagging language used for reports, be the preferred tagging standard used for such identity information. This referential identification data is the first items needed for subsequently organizing financial transaction data.  Thereafter, for communicating financial transactions across and within market participants, and across the financial supply chain such ontologies or tagging languages as FIBO, FixMl, FpML, CpML, et al can be used separately, even organized into a common set of elemental data tagging standards, to assure no overlap.                                                                                                                                       
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