When Euroclear Bank and SmartStream joined forces in November 2012 to deliver a centralised reference data utility, many financial services firms were beginning to realise the need to improve data management and deliver higher quality data at a lower cost. Fast forward two years and the pressure to review and renew failing data management models is intense. The need is not for more of the same siloed solutions, but for a dramatic change to data management models that can support today’s operational and regulatory demands for accurate and timely data at a significantly reduced cost.
Euroclear and SmartStream’s Central Data Utility (CDU) was developed to facilitate change and is gaining traction as budgets continue to be squeezed despite the need for vastly improved reference data management. SmartStream started to build a reference data utility about four years ago and partnered with Euroclear Bank, a bank owned post-trade services provider, in 2012 to accelerate the utility’s move into the market.
Philippe Chambadal, CEO at SmartStream, explains: “Capital markets firms suffer a large number of trade breaks and attribute 35% to 40% of them to mismatches in reference data. This means a lot of corrections must be made and an enormous amount of money is wasted. We decided to build a data utility that could manage reference data from multiple sources, validate and cleanse the data, and deliver high quality data into firms’ post-trade management processes. We had the utility running internally and partnered with Euroclear Bank as it has high volumes of reference data and a large client footprint that is helping us get the CDU to market quickly. As an asset servicer, Euroclear Bank also has great experience of data management and understands the problems firms face.”
For Euroclear Bank, the partnership is a first foray into marketing independent data management services, but also a natural extension of the reference data processing it carries out for its bank owners. With SmartStream technology powering the CDU and Euroclear Bank sourcing reference data, the partners are collaborating on development and taking the service to market together, although Euroclear Bank is taking responsibility for signing client contracts.
Martijn Groot, director of Euroclear Bank’s product management division, says: “Euroclear Bank supports Level 1 operations of sourcing and cleansing data, while SmartStream supports Level 2 operations with a rules-based engine that provides data validation as well as exceptions management. Exceptions are checked by our operations teams and we can cover all time zones as Euroclear Bank has operations centres in Brussels, Krakow [Poland] and Hong Kong, and SmartStream has centres on the west coast of America and in India.”
As well as sourcing, validating, cleansing and enriching reference data that is required by clients from primary sources, the CDU provides a centralised service for data licensed by clients from market data vendors. Once processed, whether the data is from a primary source or market data vendor, the data is distributed to clients on an intraday basis and in the format of their choice. The data can be mapped to proprietary client codes using a SmartStream data dictionary, making the service non-invasive as there are no requirements to change data models within applications.
The service can also process client data, perhaps daily security masters, respond to interactive requests for reference data, and manage, share and map common datasets such as Legal Entity Identifiers (LEIs) and the reference data required to comply with the Foreign Account Tax Compliance Act (FATCA). Service level agreements (SLAs), which are not always offered by market data vendors, are in place to reinforce provision of high quality and timely data.
Chambadal says: “The utility goes beyond business process outsourcing that provides instances of enterprise data management for each client. Instead, the utility is a multi-tenanted, single reference data management platform that recognises that all clients are different yet delivers the exact data that each client wants. Data quality will continue to improve as more clients use the service and more data is processed.”
Essentially, the data management service offers data from primary sources and third parties in a high quality data management wrapper.
One example of data from primary sources is Eurobond data. This covers about 200,000 securities and was integrated into the utility in June 2013. Another example of primary data is listed derivatives data sourced from futures and options exchanges.
Over the next two quarters, the partners plan to add more data from primary sources to the CDU, particularly data from exchanges and depositories within the Euroclear group. Fixed income and equities data from the group’s largest Central Securities Depositories in the UK and France will be added, along with data from five smaller European depositories.
Coverage of futures and options exchanges will also be expanded, with the number of exchanges used to source primary data rising from about 50 to 80 on a global basis. The number of market data vendors integrated with the utility is expected to rise in response to client requests for licensed third-party reference data to be processed alongside primary reference data.
Among the services offered by the data management utility is a real-time alert service for new issues, which reflects Euroclear Bank’s strengths and is gaining interest. Groot explains: “Euroclear Bank is the national numbering agency for Eurobonds, so as soon as a new issue has an ISIN code it can be distributed as skeleton data and later updated and distributed with pricing data. Any new issues can be delivered in batch mode or pushed out on an intraday basis at about 10 minute intervals if there are new issues to report. This is of interest to front offices that have previously used manual processes to handle new issues, but are keen to receive the information in an automated and proactive way.”
As the CDU builds up reference data content and extends its services portfolio, it is becoming increasingly attractive to early users and prospective clients that are looking for large-scale data management improvements and the significant cost savings that can be provided by a model that combines user selection of data with variable pricing depending on volumes consumed.
Most clients engage with the utility in one of two ways, using it either for point solutions that address particular problems, perhaps the need for Eurobond corporate actions data, or as a basis for a broader approach that could include complete reference data management. In this case, the CDU can provide data from multiple sources, processed and in selected formats, the whole backed up by audit trails and quality metrics enshrined in SLAs. This approach is expected to be favoured by large banks working towards simplifying and industrialising back-office processes.
Chambadal says: “Large banks using the utility to distribute and map reference data to many applications can benefit from reductions in the cost of data management, including the downstream costs of repairs to data breaks, and can take advantage of the utility’s consistency of data to collapse the number of security masters they run, eventually to one.
They can also improve data governance and their response to regulations that require reference data to be audited. Smaller firms with five or six applications can get out of data management altogether as the utility can feed the applications directly with selected data and the security master can be maintained in a cloud environment.”
The CDU is already processing reference data for millions of instruments every month and is finding favour not only among Euroclear Bank’s 1,300 clients, but also further afield. Groot concludes: “Several Euroclear Bank clients are using the utility and more are trialling some of its services. Firms including asset managers and trust companies that have no relationship with Euroclear Bank are also showing interest in the utility.”