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| How to Cater for the Data |
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| Tuesday, 07 October 2008 | ||
| Investor Services Journal | ||
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With markets in such a turbulent state, holistic risk management has become priority. Every organisation, buy or sell side, is now desperate to get a fully integrated view of its exposure in every possible direction to every counterparty, geography and market sector. It has meant that data services has ceased to be consigned to obscure specialists the front office will hardly ever see. The fear of vulnerable businesses, combined with the positive pressures of brokers and other organisations look to develop new trading strategies based on a deeper understanding of data its services, are thrusting the subject to the fore. Data services and data transparency are bedrock components of the Markets in Financial Instruments Directive (MiFID). The aim of opening up European borders and create a truly pan-European financial services sector creates issues around the way data is gathered, maintained, and shared. These issues have ultimately to do with data transparency and accountability. However, with major banks failing to the left and to the right, MiFID has rather dropped off the agenda. The issue of risk visibility and risk management is far more urgent. Neil Edelstein, vice president, product solutions at GoldenSource, says his company has been advising clients for years, long before the current "toxic debt" problem, that not understanding their core data was at the root of many of their difficulties. GoldenSource provides a data warehouse which creates both a data repository and a mechanism for scrubbing and validating the data, so that the entire organisation can run of "one version of the truth". "There are hundreds of attributes that data can have, all of which can be vital," he says. "If you set up the data correctly, then you can pull out all kinds of views of that data, so you can see what your counterparty risk is. You can analyse the collateral you are holding on thousands of transactions. Moreover, all of this can feed into downstream risk applications and accounting systems to increase the transparency of information throughout the organisation." GoldenSource targets both the buy-side and sell-side, because institutions are looking for a twofold benefit. On the one hand, they want to be able to match and compare feeds from various sources to validate data. On the other hand, they want to be able to assign a whole raft of attributes to data to cope with the vast increase in transaction complexity. As Edelstein observes, you can't understand the risk behind a derivatives transaction, for example, if you cannot identify all the counterparties involved. "What is very important in derivatives is the linkage between the derivative and the underlying instruments that determine it. To cope with this we have developed a solution that offers a deep understanding of the data attributes of derivatives, and this is build into the data model." Edelstein foresees a steep increase in regulatory activity and in the regulatory framework, and that organisations will look for a deep understanding of their securities. The emphasis will be on transparency and visibility. "In the past, not being able to see into the securitised package, for example, has been of advantage to many. But it was always all going to collapse at some point, and this point has now been reached," he comments. * * *
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