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Strategy and Tools for Tracking Licensed Data Within Financial Services

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By Neil Sandle, Head of Product Management, Alveo.

Indices are tools used to track how asset classes, industry sectors, market segments, and a host of other physical and virtual sets of data perform over time.

Leading examples can be found in the realm of financial services, in particular with stock markets, where the FTSE 100, NASDAQ Composite and Hang Seng Index are primary examples. Other asset classes can also be found as indices, such as returns from Fixed Income portfolios. They serve as a solid foundation for product development, asset allocation and performance benchmarking.

Exchange-traded-funds (ETFs) such as iShares by BlackRock are instruments that directly follow price movements in indices, either directly or inversely. Demand for indices is growing and the market of index providers is quite concentrated with a few large players dominating the market. The FCA has initiated a Wholesale Data Market Study, that investigates the market data space including index data.

Tracking the price of Index data

A report published recently by AFME, shows that fixed income data spend for sell-side institutions has increased by half in the past five years. This represents a trend across the financial services industry. Spend on data from exchanges has also risen by 42% since 2017 with information services becoming an increasingly central business model for exchanges.

In particular, the license fees for indices have risen sharply. If investment products rely on this data to function, then this is an essential cost that the financial services provider has to bear, especially if they are contractually required to report performance against a specific index as part of their mandate. This stipulation is often made to allow performance comparisons between asset managers and their different products.

Therefore, tracking data consumption is critical in order to generate maximum value from a scarce resource. This implies being able to track who uses the data within an organisation, the downstream applications and (internal or external) reports in which the data appears. It should also be clear whether new derivations from the data are created such as internal, custom benchmarks.

Fundamental to understanding how the data is used involves ensuring that it is correctly permissioned within the organisation and that license restrictions are followed. As is the case with all licensed products, when additional products are created on top of it, royalties may be due to the originator.

The question naturally arises, how can an organisation track its usage of data? The answer is the introduction, or utilisation, of comprehensive data lineage and data usage tracking tools. Firms should be clear about how they buy the data and where it enters the organisation, and its subsequent journey within the enterprise. This means understanding who uses the data, in which databases or business applications it is stored on, and whether it is used for external reporting. Due to granular content licensing, index data is a scarce resource and should be managed, or perhaps sometimes even rationed, accordingly.

Firms with low data management maturity will naturally struggle to collect and aggregate data or integrate it into their workflows. Maintaining the integrity and quality of the data will also be challenging when examining how the data is used in interactions with third parties, not only internally.

Siloed working practices, and a lack of detailed knowledge of the license rights may present further complexities if the data is allowed to subsequently leave the organisation via email or in reports without express rights.

Data management and tracking and tracing to the rescue

The key to solving these issues and ensuring that index data is being managed correctly, is to understand whether the data is being used to derive proprietary blended indices or benchmarks, as this typically has its own licensing implications.

Staying compliant with license agreements requires being able to track the data. Tracking also brings other benefits, such as being able to exercise greater control over what the organisation is buying, how much data it is using, and whether it needs to be paid for. Data tracking allows an enterprise to answer queries, undertake root cause analysis and respond to customers, investors and regulators, allowing firms to justify and explain their decision making.

A sound data management solution will help this strategy. By acting as a central pathway, the solution with track permissions and map data as it travels from system to system and department to department. A centralised solution such as this will track lineage and flows end-to-end, providing a single clear view of data usage and distribution. Opting for a Data-as-a-Service (DaaS) solution from a managed data service provider gives financial services companies the ability to effectively manage their data, increase agility and flexibility, and remove the unnecessary expenditure of data processing and platform maintenance.

This strategy marks a major advance in overcoming the complexity of managing index data by ensuring peace of mind in terms of compliance, and having a comprehensive view of data flows. Having this in place will allow firms to be in control and be able to properly cope with often opaque pricing models. Worst case scenario is if the facts as to the usage (direct or indirect via derivated data) are only unearthed during a data vendor audit. Firms need to know how they use data products to stay ahead of that curve and Data-as-a-Service solutions built on robust and proven technology are indispensable for that.

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