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A-Team Report: Complex Instruments Demand Overhaul of Data Management by Buy Side

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Following last month’s webinar on derivatives and data management, A-Team Group and EDM vendor GoldenSource have released a report on the specific challenges faced by global reference data managers in buy side firms, with a particular focus on the impact of OTC derivatives. The report involved discussions with a sample of senior individuals directly involved in buy side reference data management from the top 100 asset management firms, largely from the UK and US. Of these respondents, 70% had global data responsibilities and another 15% had regional responsibility.

The three main forces driving a re-evaluation of data management identified by the study comprise: business risk, centralised data management and OTC derivatives. With regards to business risk, increased regulation has created a chain reaction of proactive risk management at these firms. Data is now considered to be an asset that the firm can leverage to quantify exposure and make it easier to comply.

In accordance with last year’s study on the same topic, most buy side respondents classified themselves as having centralised data management or decentralised data management with central controls. This year, 28% stated they were in transition to one of these two data management styles. The report indicates that derivatives in particular are causing firms to re-evaluate these centralised processes. Recent events, growing business demands and complex instruments have raised the bar for the flexibility, disciplines, and tools necessary to run an effective central data operation, the report states.

One respondent noted: “Derivatives are a caveat for us to look at processes again.” Another stated: “We need to centralise to meet the growing need of downstream applications, especially for derivatives. We have trouble handling that data in current systems.” A number of respondents felt they needed to provide a more systematic and robust solution than Excel for the downstream data management of derivatives before this data could be merged into a central database.

This uncertainty around how to manage the business-driven take-up of complex instruments is causing havoc with existing data management solutions, particularly older in-house systems, the report explains.

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