Euroclear Bank’s partnership with SmartStream, announced early this week, will deliver a centralised reference data utility service designed to deliver high-quality data from a neutral source, reduce mismatches in reference data, cut back-office costs and provide an intra-day view of markets. The first service dedicated to Eurobond data will be available towards the end of this year, with additional data on corporate actions and data from exchanges covering equities, convertible bonds, futures and options due to go live in the first half of next year.
The organisations started discussing the possibility of a central data utility (CDU) about a year ago. SmartStream was keen to find a partner to accelerate market penetration of its own data utility, the Transaction Lifecycle Management Reference Data Management Service, which has been in production with a number of large banks for three-and-a-half years.
Philippe Chambadal, CEO of SmartStream, explains: “Euroclear was at the top of our list of potential partners as it is bank-owned, innovative and has about 2,000 clients. It’s a clearing house, not an exchange, and it has a unique Eurobond data set and strong corporate actions data in Europe. SmartStream had developed the view that reference data services in the back offices of banks should run as shared services, so we built a service and Euroclear will expand it with its content.”
Essentially, Euroclear will source securities data from data vendors and data originators, such as central securities depositories and stock exchanges, which will then be validated, cleansed and normalised on SmartStream’s reference data management platform before being delivered to clients in the format of their choice on an intra-day basis. Additional data sources will be added in response to client demand and the partners have started to load DTCC Avox data on counterparties on to the CDU ahead of the introduction of a global legal entity identifier scheme next year.
Yves Poullet, CEO at Euroclear Bank, says: “Capital market firms attribute 35% to 40% of all trade breaks to avoidable mismatches in reference data. Through our partnership with SmartStream, we aim to drastically reduce the number of mismatches by providing the highest quality of data accuracy, including the use of in-house information and information from a comprehensive network of other data producers. Firms no longer need to bear the enormous costs and risks of scrubbing securities information themselves.”
Poullet suggests back-office clients using the CDU could save €20 million or more a year, while Chambadal breaks down the cost of mismatches saying that for every $1 spent on reference data management, banks spend $5 on fixing processes that are broken by poor data. As well as reducing costs, Chambadal suggests the removal of mismatches will support a higher rate of straight-through-processing. The CDU is also expected to help users meet regulations that measure reference data quality and drive up data quality incrementally as more clients join the service and use common data.
He says: “The financial service market has never seen a bank-owned utility tackle data issues in this way. It is the first time an organisation has managed securities, corporate actions, legal entity and counterparty reference data under one roof. This transforms the way information is managed and gives banks a unified view of data for middle and back-office applications.”
While SmartStream will continue to offer its own reference data management service, which covers most asset classes, and clients will contract with Euroclear for CDU services, Chambadal suggests the vendor and bank services may be merged in future to deliver a bank-owned market utility that, like the CDU, shares revenue between the partners. He does not envisage another partnership, at least in the short term, and believes a market infrastructure firm getting into the business at the right time has greater chances of success with a central utility than efforts previously made by systems integrators and data vendors.
“Neutrality is needed to be successful. It’s not a question of brains, but DNA,” says Chambadal. He suggests it would take a competitor two to three years to get up and running with a similar system and says he is not aware of anyone attempting to do so, but insists shared services that deliver cost savings and efficiencies are the only way forward. “It makes sense to share reference data,” he concludes.