The leading knowledge platform for the financial technology industry
The leading knowledge platform for the financial technology industry

A-Team Insight Blogs

A-Team Analysis: The Devil’s in the Detail for Derivatives Data

The obsession of the industry at large with over-the-counter (OTC) derivatives, in particular credit default swaps (CDSs) but also interest rate swaps and increasingly equity derivatives, is having an ever greater impact on the world of reference data.

The providers of data management systems report a growing demand from among their prospects and clients to demonstrate the capabilities of their systems in the derivatives sphere. The challenge firms face is that many of their existing core systems cannot compute the properties of complex instruments like structured products, and therefore they need their data management layers to be able to capture those trade details –

in many cases, alongside the data they are already managing to support other business lines such as equities – as a more robust alternative to the typical spreadsheet set-up in place in many middle offices currently. The onus is on the data management system vendors to ensure their products offer sufficient flexibility to accommodate complex and ever changing trade structures in rapid time-frames – and can take in details of those trades from a range of sources both external and internal “out of the box”.

With UCITS III among other factors opening up the use of derivatives for investment managers the needs of the buy side are coming more into play in the derivatives data discussion. As reported in the last issue of Reference Data Review, Standard & Poor’s is already investigating how to create packaged solutions of reference data that will be affordable to buy sides as their need to support derivatives activity grows. And speaking at the Osney Media “Optimising Derivatives Operations in Fund Management” conference earlier this month, Citisoft consultant Sean Sprackling warned his buy side audience that their greater use of derivatives would generate “very different data needs” from those they have had to handle historically. “You may need to implement different data solutions from the GoldenSource or Eagle Pace type systems you have in place today,” he said.
It is true that in many cases investment managers will have smaller budgets for data and IT than their sell side counterparts, but in the area of derivatives their needs are further complicated by the fact that from within a smaller operation they will typically be trading lower volumes of derivatives, but across a broader range of instruments – and this has implications for the value to them of some of the single instrument focused systems already in place to serve derivatives dealers. While a big sell side may not object to hooking up to multiple confirmation matching systems, for example, a buy side could find that prospect less appealing. As Markus von Crailsheim, of the OTC trade support department at Deutscher Investment Trust, said at the same conference: “We may get to use Swapswire or DTCC Deriv/SERV for free, but we still have to implement the systems within our workflows.”

Related content

WEBINAR

Recorded Webinar: A new way of collaborating with data

Digital transformation in the financial services sector has raised many questions around data, including the cost and volume of reference data required by each financial institution. Firms want to pick and choose the reference data they need to fulfil their requirements. Emerging solutions with the potential to decrease the cost of data and increase flexibility...

BLOG

DSB Publishes UPI Implementation Timeline, Lists Products Requiring Identifier, Opens Second Fee Model Consultation

The Derivatives Service Bureau (DSB) has taken three more significant steps towards go live of the Unique Product Identifier (UPI) service in July 2022 with the publication of a draft implementation timeline, an initial list of products that will require UPIs and a second UPI fee model industry consultation focusing on the timeline and encouraging...

EVENT

RegTech Summit London

Now in its 6th year, the RegTech Summit in London explores how the European financial services industry can leverage technology to drive innovation, cut costs and support regulatory change.

GUIDE

Risk & Compliance

The current financial climate has meant that risk management and compliance requirements are never far from the minds of the boards of financial institutions. In order to meet the slew of regulations on the horizon, firms are being compelled to invest in their systems in order to cope with the new requirements. Data management is...