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To Centralize or Not to Centralize

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It’s always better to end with a bang than a whimper. So we were happy this month’s FIMA event in London gave the reference data community real pause for thought. Many industry events don’t deliver; this one did.

Central to the three days of industry debate was the subject of, erm, centralization. In other words, should a financial institution place responsibility for enterprise-wide management of its data services within a single group. Loyal Reference Data Review readers will already be familiar with our recent survey of 100 or so reference data managers. (If you haven’t read it yet, you should. Download it from commissioner Reuters’ web-site at http://about.reuters.com/datascope)

Whichever business driver is jerking your chain – our survey found that regulatory pressures were stronger than the promise of operational efficiency often espoused by protagonists looking for the Holy Grail of ROI – management of data is key. The current centralized vs. decentralized debate reminds us of the state of affairs in the front-office market data platform business a decade ago. Back then, asset classes were run by fiefdoms. Standardization didn’t matter. The head of fixed-income couldn’t care less what the head of equities thought, as long as money was being made. At FIMA, participants to’d and fro’d over the centralization issue.

Many firms – Goldman Sachs for one – approached the centralization task in stages, working on relatively easy U.S. equities first, followed by European equities and then fixed income. This approach “built momentum as the project’s reputation grew internally,” said James Perry. ING worked on a local Brussels-based project but has since expanded it to be European-wide with the rollout of their central repository of reference data, corporate actions and historical data covering 1.5 million instruments. The firm’s data management group acts as an internal data vendor, although it has only one interface to an external vendor Telekurs Financial, alongside its own data, having decided that it is too difficult to normalize across all the information vendors. While the technology is centralized, the management of it is not always the same.

The expertise of local staff in the right time zone to handle the data was pointed out as an important factor in a centralization project’s success. Several firms, including ING, backed up our research by suggesting they were considering ways to leverage their investment in data management to provide outsourced data services for their clients. As for outsourcing their own data management by using data management technology vendors, there was a mixed response. Some firms believed in the benefit of using external vendors to leverage their expertise and market experience. Other firms, State Street among them, said that the complexity involved and the heavy customization work required to make external vendor systems work with their own operations, and that any changes via the made it costly and less flexible.

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