As banks strive for greater leanness and agility in their operations, the potential to untether themselves from cumbersome technology is enormously appealing. Simplification also means reduced cost, and reduced risk – because everything is flowing from a credible master data set.
As well as enabling Capital Markets operators to become substantially more agile in responding to changes in market structure and activity, this offers trading organisations a clear line of sight into their full business performance, driving smarter use of resources. This paves the way for essential cost reductions and revenue growth needed to optimise returns in a tough climate.
Mike Bagguley, former COO of Barclays International and now a board advisor to Inforalgo, glimpses the future of value-added trade data services.
Up to now, wholesale banking institutions have viewed trade reporting largely as a necessary and costly burden which keeps them compliant and allows them to continue doing business. But, as regulators continue to push back and demand more of organisations – in terms of more proactive surveillance of trading conduct, for instance – the realisation is dawning that high-quality trade records underpin multiple outcomes, and are a rich business resource than has been under appreciated.
In retail banking and credit card provision, as indeed in many other consumer-facing industries, organisations already routinely combine transaction records with customer data for deeper analysis. This helps them to spot trends in customer activity, and determine where their most profitable business is coming from. Conversely, it can help them spot poorly performing sectors of the market and accounts which are much less profitable.
Armed with these insights, organisations are able to target their marketing and sales activities more precisely, to win more of the business they really want. They can also provide useful feedback to product development teams, to help inspire more attractive propositions for customers which the business has previously struggled to reach or convert. Such activity also aligns well with organisations’ commitment to better business conduct and improved customer outcomes.
In investment banking, this level of sophistication has been historically absent. For instance, an institution is unlikely to be able to see, at a glance, how they are performing with insurance companies in France, or whether they are performing poorly with car manufacturers in Germany, relative to the opportunity.
That’s because management teams lack a clear line of sight across all of their current and historic trading and client activity. This in turn is down to how they have procured their IT systems. Commonly, each outlay on a data technology or service has been a passive response to new regulatory demands, or a necessary preparation for expansion of investment activities. For every new requirement, financial institutions have tended to put in yet another new function-specific IT system, or sign up to yet another specialist third-party service, copying across a set of trade data for it to work with – in the process creating costly new silos.
Until now, that is.
The end of an era: trade data management moves to the cloud
It is widely accepted that a piecemeal approach to trade data treatment is unsustainable. Firstly, it is costing banks significant amounts to manage scores of different IT systems and/or third-party services, and to keep updating them each time regulatory requirements move on again – costs which they can ill afford, especially in this continued lull in investment markets’ performance.
Secondly, all of these unwieldy trade data management activities are adding very little, if any, value to the business. They may mitigate one risk – for instance, that of failing to meet regulatory reporting demands – but in the process introduce new risks related to resilience, cyber threats and so on.
Certainly, each time trade data is transposed to another departmental system or third-party service party, there is a rising threat of errors or out-of-date information creeping in. And the need for reconciliations – a complex activity, at best – grows exponentially.
Of more strategic significance, having disparate systems all managing trade data separately – without any central oversight or coordination – is preventing organisations from improving business performance and conduct.
The good news is that, now that cloud-based software services are accepted as being a secure and viable alternative to managing business applications internally, financial institutions have an opportunity to do things very differently. They can entertain the possibility of consolidating complete, clean, definitive trade records to a single source, accessible via a single central online hub, to serve multiple different use cases. And, in the process, they can address many of the challenges they currently face.
For instance, it becomes possible to streamline a whole range of critical business processes, including regulatory reporting to trading and market surveillance, around a credible, approved master data set – as captured at the time of transaction. The trade reporting record, being at the front of the process and definitive in that it is the reported version of the trade, is the leading candidate to anchor this process rationalisation.
As financial institutions entrust data management and processing activity to the cloud, they can start to divest themselves of their debilitatingly expensive sprawl of internal IT systems that has grown up across their operations. This immediately reduces risk and costs – direct and indirect – by the significant amounts needed to support improved business returns.
In so doing, Capital Markets operators can start to appreciate and exploit the bigger picture emerging from all of their trade activity. From surveillance of trading conduct, to optimising trade performance and profit, financial institutions now have an opportunity to be smarter about how they target their resources.
Joining the dots: overcoming data islands
Certainly, if they are intent on becoming better-run businesses, financial institutions need a more detailed picture across all of their activities. They need to be able to combine trade flows with other data sources–revenue and profit performance data, client relationship management records and even client electronic communications (important for comprehensive trade surveillance/detecting insider trading or market manipulation).
Although, increasingly, banks are using cloud-based software tools like Salesforce.com to collate and organise client information, there needs to be a link between this data and actual trade records. Without this, they will have a limited ability to distil business-oriented insights, such as where opportunities are being missed.
Data consolidation and inter-systems integration has to be the way forward, then. It is this that will deliver the joined-up information so that financial services organisations can provide 360-degree transparency and traceability – allowing them to properly manage the conduct of their business and fulfil regulatory requirements.
The key is to aim to achieve all of this as automatically as possible, without having to recreate or copy data for each different use case. Using a cloud-based trade data store maximises the options, enabling multiple outcomes to be derived from a single, integrated, credible, current master data source, which spans all asset classes, and is easy for all teams to access from wherever they are in the organisation, and across the world.
From this vantage point, everything including compliance, risk, business analysis, and even end-of-day financial reporting, can all be managed effortlessly using the same clean, certified and up-to-date data. And without the continued need for huge, unwieldy and costly IT estates – resulting in savings which could run into millions, annually.
Over time, we are likely to see more wholesale banking institutions realise the value of consolidating all of their trade data management and reporting via a single, optimised cloud-based service, so they can rationalise their out-of-control IT estates, and use their data in new, high-impact ways.
The future for trade data management will be simpler, leaner, smarter. And from that, improved performance will surely flow.
About the Author
Mike Bagguley, a respected financial markets industry leader, is a board advisor to Inforalgo and also an investor in the business.
Formerly COO at Barclays International, Mike brings a wealth of experience to Inforalgo, gained across a range of senior market roles and leadership positions at Barclays Investment Bank, where he was head of the Bank’s FI, FX and Commodities business. As COO of Barclays Investment Bank, Mike focused on executing a strong IT and data strategy, focused on platform rationalisation – experience that enables him to fully appreciate Inforalgo’s proposition.
His role at Inforalgo involves capitalising on growing momentum around our smart data solutions for Capital Markets which allow financial market participants to significantly reduce risk and costs in their trading businesses: rationalising their technology and operating platforms while allowing them to efficiently pursue the full spectrum of market opportunities.