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A-Team Insight Blogs

STP and Operational Efficiency are Main Drivers for Investment in Reference Data, Say RDR Readers

According to a poll of Reference Data Review’s readers, the main driver for investment in reference data management projects is an increase in straight through processing (STP) and operational efficiency.

The poll, which was sponsored by Syn~ from Coexis, indicates that despite the rumours of its ‘death’, STP is still very much a concern in the industry. More than half of respondents (52%) cited STP and operational efficiency as the main driver for investment in reference data management projects.

This result indicates that rather than being seen as a secondary concern, STP has risen up the priority ranks within institutions to gain the top spot within the area of reference data management.

A secondary concern for these projects appears to be risk management, at 24% of respondents, which is a surprisingly low number given the recent focus on the risk posed by inaccurate data in the back office. Société Générale’s woes as a result of “le rogue trader” Jérôme Kerviel’s actions last year, which led to USD$7.2 billion in losses, are a prime example of the risk posed by lax data management.

As a result of these losses and the heightened awareness of the threat posed by structured products due to the credit crunch and subsequent economic downturn, the areas of data security and risk management have been high on the industry agenda.

However, despite this focus on derivatives and structured products in the market at large, RDR readers did not rank these as significant drivers for investment in reference data projects. A mere 10% of respondents, representing the lowest ranked category, cited these products as main drivers for investment in reference data management. Regulatory compliance fared a little better as a driver for investment, at 14% of respondents.

This is also surprising in light of A-Team’s recent research into the area of derivatives and data management, which was released last month. A-Team Group and EDM vendor GoldenSource released the report on the specific challenges faced by global reference data managers in buy side firms, with a particular focus on the impact of OTC derivatives, following discussions with 100 asset management firms.

The report identified the three main forces driving a re-evaluation of data management as business risk, centralised data management and OTC derivatives, with not a mention of STP. Instead it indicated that uncertainty around how to manage the business-driven take-up of complex instruments was causing havoc with existing data management solutions, particularly older in-house systems.

Perhaps automation is seen by our readers as the key to tackling these issues – namely dealing with complex products, coping with regulatory change and getting a better handle on risk? STP is therefore seen as the enabler to tackle challenges that arise from the market and is a driver for investment in itself due to the benefits it brings to an organisation.

Given that during a time of economic difficulty, financial institutions are still investing in reference data management solutions, these drivers must make up a compelling argument for change. Long live STP.

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