Originally appeared in MiFID Monitor
A new white paper published by London-based think tank, JWG-IT, calls on firms to change the way they look at data management in light of ever-increasing equity order volumes and execution venues. It includes findings from recent surveys in London and Frankfurt where 78% of firms rated overcoming the cost of updated infrastructures and enhanced data quality as more important than their ability to identify new liquidity venues and connect to them.
The paper projects 2009 equity order levels to increase to 191 million orders (an increase of 1,600%), noting that by year end Europe will have four times as many execution venues as the US and Asia combined.
JWG-IT claims that with the implementation of MiFID last year, the change in regulatory approach from prescriptive to principles-based has been brought to a head. As a result, the industry is just beginning to define good operating models in response to the new regulatory environment.
Jitz Desai, director at JWG-IT, says ‘know your data’ is the new mantra, as firms are challenged to rationalise what they store and how they use it. He explains that the key message of the paper for investment firms is to change the way they think about the route their data is flowing through the organisation.
Although data managers have been wrestling with rising volumes for some time, Desai says this time it’s different. He says the white paper is trying to get across that there lots of different data sets to contend with in addition to market data, for example transaction data and operations on-boarding for know your customer (KYC) regulatory compliance.
He says when people look at volumes, they are looking at market data now, but need to expand this point of view and feels data management needs to be done in a coordinated manner across the organisation. It needs to be done using the latest technology and tools in areas such as data fabric, hi-bandwidth networks and messaging structures.
An appendix to the white paper, compiled by paper co-sponsor 451West Group, a research provider, includes a list of 10 basic components that form a checklist to help tune a firm’s infrastructure.
The white paper offers advice for firms, saying they should be “ceasing unnecessary collection and storage of similar data across departments and systems and focusing resources on getting the cross silo data that matters”. It goes on to elaborate that “using proprietary methods and technology designed for lower volumes will make it harder to compete as early adopters leap ahead with higher performance powered by new technologies”.
Commenting on the paper, Stuart Grant, EMEA business development manager, Financial Services at Sybase, a co-sponsor of the whitepaper, says: “Implementing flexible infrastructures that quickly analyse and action data from many different sources is a top priority.”
In terms of the growth of the number of execution venues, Desai believes, like others in the industry, that there will be a period of consolidation in the future. Referring to the number of new venues, he explains that JWG-IT believes the number will peak by the year’s end and then start to decline. However, he warns that volumes will keep rising and notes this has been the case in the US despite experiencing a period of consolidation of venues.
He believes the industry will never go back to one primary exchange like it was pre-MiFID; competition is firmly entrenched now and the price wars will continue.
Indeed, the white paper cites Thomson Reuters’ findings that as of May this year, 20% of Europe’s equities trading is carried off primary exchange with a significant portion, 17%, of this trading, reporting as being executed on firms’ own books and growing remained (3%) occurring on new MTFs.
PJ Di Giammarino, CEO JWG-IT Group, concludes: “It’s all about knowing what you need to know about and not blindly collecting data in a piecemeal fashion across departmental silos. Leaders are developing new holistic strategies to collect and store the data that matter. All investment firms need to take a hard look at their 2009 battle plans for this fight as the customer’s view of best execution is increasingly driven by cost.”
JWG-IT says it currently has over 800 members from 90 countries. The free report is titled “Winning the RegTech Data War” and is based on two years of empirical research with the market as well as survey results from recent conference events it hosted in London and Frankfurt. It is available for download on the group’s website and is being distributed at a number of industry events.