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The Data Deluge

Published in Automated Trader Magazine Issue 37 Summer 2015

A data deluge is hitting capital markets as new surveillance, trade reporting, regulation and market practices come to fruition. Neil Ainger asks if firms can handle the huge volumes of data, intra-day collateral, repository and other forms of data now required on global financial markets.

Michael Atkin, Managing Director, EDM Council

Michael Atkin, Managing Director, EDM Council

"It's like hell on earth data-wise," says Michael Atkin, a renowned data professional and managing director of the Enterprise Data Management (EDM) Council trade body, in reference to the fragmented nature of over-the-counter (OTC) derivatives and other global capital markets.

The rising demand for data is being driven by a whole raft of new post-crash regulations such as the US Dodd-Frank rules and European Market Infrastructure Regulation (EMIR). These mean that the sell and buy side must store, report, consolidate and use data - often on a real-time basis - as never before. Better data quality, standardised utility-like platforms, efficiency and control are all required in this new environment.

The capital and collateral requirements coming in under Basel III are also driving a need for more intra-day information and the reformed markets require more linkages to custodians and central counterparty clearing houses (CCPs). Still other regulations wait on the horizon, such as the EU'S Markets in Financial Instruments Directive (MiFID) II and its Market Abuse Directive (MAD) II, which is aiming to stop further Libor, FX and other such mis-selling scandals or rogue trading behaviour.

Compliance, allied to monitoring for risk concentration and market abuse, are the key drivers for the data deluge.

Banks, asset managers, brokers, infrastructure providers and all other types of market participants - even national regulators themselves as the recipients of all this reporting data - are required to respond to the call for centralised reporting, clearing and enhanced transparency, emanating from the post-crash Pittsburgh G20 meeting back in 2009.

"If you try and respond in a fragmented way, with a sticking plaster approach, then you're going to drown," says Atkin. "Regulators are putting pressure on banks and others to manage their data better and present it to them in a more usable fashion. The demand covers capital market firms' risk assessments, collateral and other mandatory data, and often necessitates intra-day reporting. You also have to think about security and resiliency issues." (See DCAM best practice)

Source: Capco

According to Michael Cooper, chief technology officer (CTO) at BT Radianz, there is almost exponential growth in data volumes, driven by regulators' concern to capture all data. "Both structured and unstructured data, which requires interpretation and often relates to social media and so-called 'big data' analytics, is being collected now for the prevention of market abuse and forensics investigations afterwards," he says. "Market changes are also driving the data deluge (i.e. more margin calls, etc)."

Steve Colwill, director of Velocimetrics, a data analysis and benchmarking firm that offers real-time performance monitoring, rightly warns data should be seen as a competitive advantage in this new marketplace, adding that: "If data isn't clean, then it is just 'stuff'."

As Robert Powell, global head of compliance at Etrali warns: "EU rules, such as MAD II, cover all voice data and conversations, which need to be kept for surveillance purposes, regardless of where platform trades are executed or stored."Moreover, it isn't just transaction reporting duties under EMIR, Dodd Frank, or even the EU's wholesale Regulation on Energy Market Integrity and Transparency (REMIT) rules that are driving the data deluge. The market abuse and conduct agenda, Know Your Customer (KYC), counterparty, tax beneficiary and other such storage requirements also matter, alongside centralised clearing and other transactional duties.

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