With pressure for risk management mounting from regulators and auditors, firms are realizing the need to manage security linkages more effectively, he says, and will look to firms that have found success in doing so, or reference-data vendors, to help them. This is especially true on the counterparty side, where firms need to identify the linkages among potential customers and their subsidiaries or holdings.
A combined effort from Standard & Poor's, Telekurs Financial and Dunn & Bradstreet has brought one product to the market, Security to Entity CrossWalk. The solution creates links among the alliance's ISIDPlus, a database of more than 600,000 of the most actively traded instruments. While an S&P spokesman says that the product has been available since the end of October, and that there are two dozen firms testing it, he couldn't be reached for further comment for this article.
Lind notes, "[CrossWalk is] in its infancy right now. It's going to take a while before people understand the content that's there. But there's a market for it. [Right now] credit and compliance departments are having to make much of these linkages themselves."
The London Stock Exchange (LSE) is developing a similar tool using Sedols, the LSE's identification codes, that will show relationships among all securities in that master file, according to one of the exchange's executives.
Barclays' Brierley adds that a product like CrossWalk cannot alleviate every data difficulty at the company. "We would still need to deal with cross-referencing and exceptions."
Hubert Holmes, executive vice president at Cicada, a data-management vendor based in Oklahoma City, says that CrossWalk is only a piece of the puzzle. He proposes three possibilities to address counterparty-data management: building internal solutions; buying software and bringing it in-house; or outsourcing the entire process.
Outsourcing may have been a dirty word a year ago, but Haney believes that's changing in the case of counterparty-reference data. "Banks are asking, 'Why develop, maintain and host [data-management solutions] when it's not our expertise to manage IT?'" he says.
Outsourcing could have been an option for Barclays, had the practice been mature five years ago when the firm first addressed its client database, Brierley adds. However, having received a budget to take on the project internally, she feels no pressure to change its data-management practices. "We are finally in control of our data. But we still have senior management who remember when it wasn't, and they're still happy to pay for this to be done in-house."
Barclays' Brierley says that the firm's next step may be to offer its services to others who aren't as far along in gaining control of reference data from a credit-risk perspective. "There's a lot of people out there where this is still a problem."
Would firms be willing to share their data-mapping efforts? Celent's Haney says yes. "In the short term, banks may think [a proprietary data hierarchy] sets them apart from competitors. But once it's proven to be successful, it's in their own interest to sell it for profit."