By Stephen Engdahl, senior vice president of product strategy for GoldenSource
The impact of data quality on critical business functions is a hot topic in data management circles today and one that I was looking forward to hear more on at the A-Team Group Data Management for Risk, Analytics and Valuations conference that took place in New York earlier this May. Unfortunately business travel to Asia made it impossible for me to attend the conference in person. However, my trip did give me the opportunity to explore this topic in more detail from an Asia Pacific perspective. While each issue has a uniquely Asian point of view, they also underscore the fact that we’re all facing the same core set of issues regardless of the regions we operate in.
In the battle for solid corporate actions information, Asia can provide no secret solutions to the rest of the world. Like other global markets, they face similar processing issues such as the need to compare duplicate corporate actions notices, sometimes manually, to verify the accuracy of information provided. The consensus among those I surveyed in China was that obtaining this information from feeds provided by the exchanges is more accurate than receiving it via other sources, which may be more feasible than in other parts of the world due to the limited number of exchanges supplying this information. Though manual processes can introduce inaccuracies, well controlled manual processes are not seen as problematic in an area where the cost of local, qualified human resources is low.
Risk analysis is a key driver for counterparty hierarchy information. The prospect of a global standard for legal entity identifiers is of interest in Asia – with the hope that a solid identification scheme would make it simpler to maintain multiple hierarchies for use by the front office, the risk department and by compliance. In the meantime, this remains a challenge shared with other major global regions. It’s clear that any reference data management project is not complete without a solution for customer and counterparty management, particularly to serve the needs of credit and market risk analysis.
Doing More with Less
This has been a very difficult year for Japan, which is still feeling the effects of the terrible natural disaster. At many of the financial institutions I visited, it was sobering to see dim lighting through the offices and the large screen market data displays in the lobbies dark during business hours. Even before the natural disaster, the Japanese economy was struggling to recover from the credit crisis.
With their economy faltering, this is clearly not the time for financial institutions to launch massive, strategic projects that will improve their data quality. However, the desire to fix what’s wrong, minimise risk, and improve transparency is still there. I predict that Japan will be teaching us all a thing or two going forward about how to successfully implement strategic projects in step-wise fashion. Each phase needs to have minimal risk of failure, and deliver solid ROI in much less than a year. While the need for this type of approach may be more severe in Japan than elsewhere, it is a common theme that resonates in other firms across the globe.
Under the Qualified Domestic Institutional Investor (QDII) programme, Chinese nationals are now able to invest outside Chinese borders. This in turn is causing Chinese financial institutions to develop cross border trading operations. With a more heterogeneous environment that includes managing data from a large variety of sources, Chinese firms increasingly see their data management needs growing more complex and resembling those of most other global institutions.
Conversely, the Qualified Foreign Institutional Investor (QFII) programme, along with Chinese single-stock ETFs, allows non-Chinese investors to build custom portfolios of exposure to Chinese companies. This brings with it the corresponding need to source, normalise, and validate Chinese security and issuer information – and causes non-Chinese firms to face similar challenges around things such as the accuracy of corporate actions data from various alternative sources in China.
Clearly, Asian markets carry unique operational challenges that stem from each local environment and should not be minimised. However, for all of the local differences, they share several common underlying themes that investment managers, custodians, exchanges, and investment banks face regardless of hemisphere, time zone, or language spoken. This includes having a reliable source and method for obtaining corporate actions notifications, challenges maintaining customer and counterparty hierarchies, structuring projects to deliver reliably in a short timeframe, and effectively managing global operations.
Although I missed the conference in New York, my discussions in Asia covered surprisingly similar topics from a slightly different angle. I predict that the A-Team Group would do well to host a similar conference in the Asia Pacific region sometime in the future.