The leading knowledge platform for the financial technology industry
The leading knowledge platform for the financial technology industry

A-Team Insight Blogs

Why Markets Must Give Bonds a Data Licence to Thrill!

By Neill Vanlint, Global Head of Sales at GoldenSource. 

Nothing causes more heated debate than a new bond. As the spectre of the world’s central banks global response to COVID-19 continues, today marks the U.S Treasury’s latest attempt to weather the economic storm by issuing $54 billion worth of debt in the form of 20-year bonds. Depending on market interest, this new bond could become a regular fixture in the U.S Treasuries monetary policy strategy. But for many longer-term investors, underpinning the excitement of today’s issuance is a very specific data problem that has been brewing for some time across the global Fixed Income markets.

Trading Fixed Income, like all asset classes, is only as good as the data that underpins the instruments. And for every asset type, there is a very different set of attributes required. Therefore, it would stand to reason that whenever a bond is issued, the financial institution trading it would always need an accurate issue and a maturity date. Or, if it was an interest paying bond, the same institutions would require schedules to be present. The trouble is that too many financial institutions have all this information scattered across different systems with no mandatory checks being carried out. As such, the data being used to make trading decisions is very often incorrect. As a case in point, one system could be defining a perpetual bond as having a maturity date. This, despite the fact that a perpetual bond, by definition, should never have a maturity date as there is no end date for when it is going to mature.

While this may seem like an extreme error, it is typical of the type of inconsistencies that currently reside in the data systems of firms trading bonds. The complexities of the information sourced from the various market data vendors often means the data housed across various systems is very different. After all, it is very rare that multiple systems within a bank all validate data in the same way. Not only does this lead to operational inconsistences but it could also lead to inaccurate risk calculations. Particularly if a bank is making trading decisions based on a maturity date on a bond that does not actually exist.

Due to these risks, regulators are understandably pushing the industry to implement their own due diligence on their vendors through independent verification across data sources. This includes collating, ranking and defining those bond instrument types in a central place where records can be audited easily – not across numerous systems. Only by applying rules to detect issues within Fixed Income before they occur can financial institutions harbour any hopes of demonstrating responsibility in their trading decisions to regulators and investors. The launch of any new bond always creates excitement about new enhanced liquidity entering the market. Today’s 20-year U.S treasury bond is no exception, but, unless market participants overcome data errors across their existing systems, their wider Fixed Income trading strategies will be a bit like the financial equivalent of George Lazenby, unable to live up to expectations.

Related content

WEBINAR

Recorded Webinar: Market data management, licensing and administration in the post-Covid environment

Market data administration has always been a challenge. For many firms, keeping tabs on permissioning and entitlements, compliance with licensing agreements, and reconciling all that with increasingly complex invoices requires a significant dedicated resource with a clear understanding of the issues involved. As if that weren’t enough, things got more challenging for these teams in...

BLOG

kACE Launches FX Volatility Aggregator in Partnership with Algorithmica

kACE, the FX technology unit operated by BGC Partners’ Fenics Software subsidiary, has partnered with quantitative analysis solutions vendor Algorithmica, to launch the kACE Volatility Aggregator (kACE VA) application. The solution is aimed primarily at buy- and sell-side firms, and corporate treasuries that consume FX Option volatilities and wish to customise the data they receive....

EVENT

RegTech Summit APAC Virtual

RegTech Summit APAC will explore the current regulatory environment in Asia Pacific, the impact of COVID on the RegTech industry and the extent to which the pandemic has acted a catalyst for RegTech adoption in financial markets.

GUIDE

Trading Regulations Handbook 2021

In these unprecedented times, a carefully crafted trading infrastructure is crucial for capital markets participants. Yet, the impact of trading regulations on infrastructure can be difficult to manage. The Trading Regulations Handbook 2021 can help. It provides all the essentials you need to know about regulations impacting trading operations, data and technology. A-Team Group’s Trading...