It's like that adage, "Water, water everywhere but not a drop to drink" -- we are surrounded by data, but the overwhelming volume, speed and complexity of the data make it impossible to understand what it all means. Data velocity is increasing, complexity is expanding, volumes are exploding, and investors are looking for new and more intricate ways of taking advantage of the tiniest of opportunities. But where does that leave us?
We have disparate symbologies, heterogeneous applications, nonintegrated technologies, differing needs, siloed data warehouses and a business that demands sub-second response times. We absolutely are surrounded by data, but making sense of it is almost impossible.
Now, most of us who have been in the industry for more than six weeks know this problem. The challenge is: How do you assemble a return-on-investment strategy to fix the problem, and, subsequently, how do you solve this challenge before your infant children retire? Both of these hurdles make for projects that no one wants to green-light and few want to tackle.
But maybe we are looking at the problem incorrectly. Maybe the challenge isn't how to get the all-singing, all-dancing warehouse -- but rather, how to develop the integrated data infrastructure that manages data like products? We track trades, inventory and currency, but do we track data accuracy, timeliness or completeness? Maybe we should.
To begin this effort we would need to rethink our idea of how our industry and our firms work. Instead of thinking that our business is trade-, position- or inventory-based, we would need to turn that view on its head by thinking that our industry is data-based. Instead of measuring only transactions and values (things that we used to be able to count when securities were physical), we would need to begin measuring virtually every piece of data and how and when it was received, entered, stored and modified. We would need not only to capture this information, but also to develop tolerances as well as track and trend it.
I hate to say this, but we almost need to begin to think of managing our firms like (Dare I say it?) Wal-Mart manages its enterprise. This way, we could measure how long it took to set up a product or customer record; identify whether it was set up accurately; or note if it was in a tolerance band that was acceptable given the product/customer, time of day and the trading cycle of that product/customer. It goes back to the old saying, "You can't manage what you can't measure."
Now, I know that it would require adding significant storage facilities to capture this information. But storage is cheap, and with the declining cost of memory and disks, it is getting less expensive by the day. All we really need to do is to get Steve Jobs to allow us to harness the unused memory in our iPods. Think of how much extra storage there is on all those devices on Wall Street. Just kidding. ...
But seriously, with this ability, firms could begin to take advantage of their information to better price, more accurately manage risk, and more effectively and confidently quote and trade, which begins to pay for the expenditures needed to develop such an infrastructure.
It really goes back to basics of classical financial thinking. Information provides advantage and time equals money. If we can develop the flexible and informative infrastructure to capture, clean and manage accurate data quickly, then our traders, bankers, analysts and financial engineers certainly can figure out how to profit by it. <<<
Larry Tabb is the founder and CEO of TABB Group, the financial markets' research and strategic advisory firm focused exclusively on capital markets. Founded in 2003 and based on the interview-based research methodology of "first-person knowledge" he developed, TABB Group ... View Full Bio