FT Interactive Data has spent much of the recent past consolidating its datasets to address the needs of its customers internationally. Reference Data Review spoke to Tom Aubrey, European markets director, about the company’s view of the market.
“If you explain to people outside the securities industry that in effect the industry can’t agree on how to identify a security, they don’t understand how it can work – and that is a fair comment,” says Aubrey.
“That’s why it’s important to have a long-term roadmap and to keep the discussion going. ANNA is obviously one body that does this, but because it is based on national numbering agencies it only has national remits. So it is not surprising that the two proposals on the table now are LSE with its Sedol expansion plans and Telekurs/S&P with the ANNA Service Bureau.”
The drive towards standards is a key area for FTID says Aubrey. “Within the whole reference data area, the issue of identification is an important area of debate. Over the past few years we have had discussions with various numbering agencies to try to solve the problem of securities identification.
“In the long run you’d be expecting everyone to be moving towards using the same codes. That’s not going to happen in the short term. Ideally, you’d move towards using the same code in the back office and then consolidation in the front office. It’s not really necessary that they have the same codes if mapping becomes simpler – and if the way that the codes are structured enables mapping to be straightforward that would be fine – but sometimes you need quite a lot of extra information to map, and that makes things more complex.”
As a company, FTID’s background is in end-of-day and intraday pricing for fixed income and equities. It recently moved to acquire the Comstock real-time pricing business from Standard & Poor’s. “The company’s main focus is still in pricing portfolios, which fits with our evaluated fixed income and, now, our evaluated equity capability,” says Aubrey. “But the market we are serving needs more than pricing information – it needs corporate action information, and to effectively manage portfolios, it needs static data as well.”
Aubrey sees three primary trends driving the direction of the industry. “Firstly, we are getting more and more requests from customers to price more complex instruments, and we are getting more feedback from the market on the processing of corporate actions, which traditionally has been highly manual.”
The primary driver in this area is simply cost. “The financial services industry has never really been that worried about its cost base due to the focus on growing revenues,” he says. “But that is changing: we are seeing more consolidation in Europe, and with a bear market coming through as well, it is certainly making senior directors think about their cost base.”
FTID’s approach in this area has been to consider the processing as well as the data. “We’ve done a lot of work on the corporate action side to codify the whole process, which makes it easier for our customers to then read the information through their systems and to facilitate STP.”
It is at this interface between the data and the processing of the data that Aubrey identifies a second strand of activity. “A lot of the problem is that there is a crossover between data and processing,” he said. “Where customers have legacy systems there is the question of whether they can code to this data and process it. Partly, they can’t, but some have started to look at these automated processes and to build the kind of functionality that will obviously reduce their costs.”
The third area goes right back to the beginning, with the reference data itself. “This is largely being driven by failed trades,” says Aubrey. “When you look at the reference data within the trade process, a lot of it is going to be counterparty information that is outside the data vendors’ view of the world.”
It is in this area that standards loom large. “The GSTPA tried to get the ball rolling. But they really looked at the front office rather than the back office, and that is where the complexity is, in the post-trade area,” said Aubrey. ”A lot of the benefits of this whole move towards reference data will rely on standards coming through. Although there may be some immediate benefits from having a unique code for internal management of data, in terms of processing it’s very difficult to see the benefits without a common format. So we are working closely with the FISD, which is becoming an excellent industry channel for all of these issues, with regular attendees on their committees.”
Aubrey reckons that the debate really kicked off with Swift’s adoption of ISO 15022 messaging, though there are limitations to that; he says: “Obviously that format is used for transactions such as in equities and FX – although within the messages themselves there is some data definition, 15022 in itself is not currently adequate in defining the wider vocabulary of market data.”
In contrast, the XML-based Market Data Definition Language (MDDL) covers reference data, corporate actions and is working closely with 15022 to ensure that the data elements are the same in both. FISD is also ensuring that it links with other XML definitions such as FpML for OTC derivatives, for instance.
“Within the market data area, all of the data vendors are behind this, which will build up a lot of traction for it,” he said. “It will still take time, and these things always take longer than you expect, but the first draft of MDDL is out there.”
The other aspect, of course, is whether customers will be adopting XML in the short term, particularly with other constraints on budgets. “There are a lot of unknowns, but the industry is definitely moving in this direction,” says Aubrey. “Often people expect that all the problems will be solved and we can go away and think about something else, but the reality is that you never completely solve everything. There is already a MDDL definition. How long it takes for the market to move to XML is just a function of their investment, really. The Tower Group expects that the industry will spend more than $7.4 billion on STP through 2005 – and that’s just for North America.”
What Does The Future Hold?
Predicting the future in this area is further complicated by the three-way relationship between the data vendors, customers and the suppliers of integrated platforms. Aubrey thinks that there may be some beneficial synergy in this, with the adoption of platforms to integrate multiple datafeeds also feeding into the standards adoption process. “Realistically, can you really say that one data vendor is going to handle corporate action data for every single asset class and instrument from every part of the world? We’re talking about dynamic data here. So data vendors specialise and the platforms certainly help customers integrate those datafeeds.
They are also helping to bring forward the timescales for implementation, because they have the XML ability that allows users to bring in all of the data vendor’s feeds and normalise them in the shorter term.”
From the customers’ point of view, it has the further effect of keeping the data vendors on their toes, he says. “We have to be accurate and timely, because if a customer wants to compare us to the competition we have to make sure that we measure up well – and that is what we are doing.”