The London Stock Exchange is entering pilot testing of a new counterparty data matching and cleansing service, in a bid to further expand its reference data services.
Though the Exchange has not yet officially announced the development as it aims to validate the space and its product first, Reference Data Review understands that it demonstrated the product to a meeting of nine banks at the end of August. The banks are said to include ABN Amro, Barclays, Credit Suisse First Boston and Dresdner Bank. A number of them are now said to be interested in participating in the pilot, which is being offered free of charge and will run for six months.
The service will position the Exc-hange in the relatively new but hot space of third-party counterparty data services. The many regulations that financial institutions are now grapp-ling with, in particular Know Your Client (KYC), Anti-Money Laund-ering and Basel II, as well as Sarbanes-Oxley and the Patriot Act in the U.S., is highlighting the need for them to get their counterparty databases in order. As such it will bring it into the competitive realm currently occupied by the likes of Azimuth’s Azdex and Adsatis’ Credit Dimensions.
A possible extension of such a service would be for the Exchange to leverage its strong position in securities identifiers through its Sedol codes, by extending them to cover counterparty data. As such numbering is not yet available, the Exchange could become a numbering standard in this space.
The Exchange hopes that the provision of free counterparty data and data cleansing services will encourage additional banks to partic-ipate in the pilot. Its initial discussions have been with London-based contacts at Tier 1 banks, but given the global aspect of the data coverage, the Exchange expects wider acceptance of the service in other regions and at smaller size firms over time.
The aim of the pilot is to collect in-depth feedback on the data as well as the commercials, similar to its previous pilot of its Sedol numbering system extension project (RDR, April 2003).
There will be three levels of service on offer. The Exchange will take in each pilot firm’s internal feeds, usually around five to six feeds, compare across them and deliver back a single internal golden copy to each bank. The data can also be compared anonymously across all other participating pilot banks. And finally the data can be compared with external counterparty data sources.
The Exchange has entered deals with two counterparty data providers to date. It is not confirmed who these providers are, but obvious players in the space include Dun & Bradstreet (and its Crosswalk venture with Stand-ard & Poor’s and Telekurs Financial), and the relatively new venture CounterpartyLink (a sister company of data management vendor Cicada).
Reference Data Review has previously reported on negotiations believed to be occuring between the London Stock Exchange and Cicada specifically in the counterparty data space (RDR, March 2005). It is possible that since the establishment of CounterpartyLink, the deal has been transferred from Cicada to the new sister entity.
One of the vendors is said to be an existing vendor but new to the counterparty data space, with plans to use the Exchange pilot as a launch pad for its own services. It is not yet clear who this vendor might be.
The Exchange has also developed a data cleansing module that has been used internally by the exchange for the past two years and has been enhanced for general release. The first use of the module will be its incorporation into the counterparty service. It will also be offered as a separate service covering three data types: client data, securities data, and trade data.
As the module is web-based and hosted remotely, the client can save the costs of a local installation required by other similar services, which the Exchange believes will make it priced more attractively.
The new service will enable the Exchange to launch other products, of which a couple are reportedly in the pipeline. Mark Husler, head of reference data at the Exchange, says, “We will now be able to customize our data sets for clients so they can utilise our data without having to take the full packages. For example we can cut and slice our Sedol data and cross-reference it with other third-party symbology.”