Learning How to Share

Banc of America Securities (BAS) has made major cost-cutting strides by creating a central hub to aggregate and validate reference data so a single source can feed front-, middle- and back-office applications.

To achieve greater efficiency, BAS believes it must work with other financial-services companies to create a managed data service (MDS) run by a third party that they all could leverage. "I expect an MDS provider to deliver a solution that combines faster time to market with a lower cost," says Roseann Palmieri, managing director, data management at BAS. Delivering this service to multiple clients should drive costs down for us all."

In October, BAS became the first (and only, as of press time) member of an advisory panel for a managed data service that SunGard Data Management Solutions plans to launch in early 2005. BAS isn't a customer of the SunGard service - and isn't sure it eventually will be - but it wants a leadership role in mapping a possible option and possibly partnering with a third-party service provider to bring the project to fruition.

Yet BAS and SunGard aren't alone in recognizing the potential in sharing reference-data services across multiple companies. Financial-services companies that are staring at a mountain of reference data - not real-time information, but historical and descriptive data - are spending tens of millions of dollars a year processing and scrubbing data and creating a composite feed, or "golden copy," to populate scores of downstream applications, ranging from equity and fixed-income trading to risk management, compliance and the back-office.

At least three other major consulting firms - Accenture, IBM and Capco - along with SunGard Data Management Solutions, a subsidiary of the financial-services software company, have been pitching the concept of a managed-data service to global banks and securities firms. Some industry observers even speculate that the concept could evolve into something of a utility, with ownership shared by the providers and customers. Their fundamental argument: The process is not a competitive differentiator.

"When you get to the data-intensive parts of how you clear a trade, there's a counterparty master list and a securities master list, which each of the Wall Street firms maintain themselves," says Lee Spirer, financial markets industry leader, IBM Business Consulting. "The differences are really marginal. They all work off the same basic data, and they augment it based on what's required to do transactions."

Vendors that want to supply a managed service contend that there's too much duplication in the reference-data silos of big banks and securities firms. "If every single institution does the same thing, it really doesn't make sense. It's a waste of resources in the industry," says Capco Reference Data Services EVP Predrag Dizdarevic, who adds that third parties can improve the quality of data because "they live and die by it."

To some, this will sound like an old - and perhaps tired - record they've heard before. The colossal failure of the Global Straight Through Processing Association (GSTPA), which proposed an industrywide solution to STP, looms like a black cloud over any talk of intra-industry cooperative efforts.

Yet the timing could be right to think differently about reference-data management. "Three years ago, we were not ready," says John Bottega, managing director, Reference Data Group - Product & Price, at Credit Suisse First Boston (CSFB). "Those who were responsible for managing reference data for their firms were solely focused on understanding and defining the optimal model for acquiring and processing multiple feeds," he explains. "It was thought that the 'better mousetrap' would result in a competitive advantage."

Bottega declines to discuss CSFB's plans, but he believes the attitude in the industry is changing and the opportunity exists for a service provider to offer customized, rules-based processing, if it's scalable and cost-effective. "Reference-data managers would love to have the burden of acquisition and processing lifted off their backs," he relates, because they realize acquiring and processing reference data doesn't lead to a competitive advantage - only a disadvantage if not done right. Industry practices have evolved to the point where most firms basically are doing the same thing, he says.

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio

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