Will Data Disaggregation Rules Deliver on Cost-Saving Aims?

BAKING A DISTRIBUTED LEDGER LAYER CAKE IN A DATA OVEN

Firms Drag Heels on Research Rulebook Rewrite

EUROPE’S NEW REGULATORY FRAMEWORK A Multi-Level View of the Aspects of MiFID II Affecting Data Management

waterstechnology.com August 2017 A big thank you for making us # WINNERS 1 Best Overall Data/Service Provider Best Corporate Actions Provider (8 Years Running) Most Innovative Regulatory Solution

SIX Financial Information is honored to be No.1 in three award categories at the Inside Reference Data Awards 2017. We are extremely proud to be voted Best Overall Data/Service Provider, reinforcing our EQOOKVOGPV VQ UWRRQTVKPI VJG ƂPCPEKCN community with innovative data and regulatory services. Thank you to all the Waters Technology readers and judges who voted for us! YYYUKZƂPCPEKCNKPHQTOCVKQPEQO Editor Max Bowie Tel: +1 646 490 3966 [email protected] Deputy Editor Jamie Hyman Tel: +44 (0) 207 316 9270 [email protected] European Reporter Joanne Faulkner Tel: +44 (0) 20 7316 9338 [email protected] Asia Staff Reporter Wei-Shen Wong Tel: +852 3411 4758 [email protected]

Publisher Katie Palisoul Tel: +44 (0)20 7316 9782 [email protected] Global Commercial Director Colin Minnihan Tel: +1 646 755 7253 [email protected] Business Development Executive Michael Balzano Tel: +1 646 755 7255 [email protected] Business Development Executive Tom Riley Tel: +44 (0) 20 7316 9780 By Accident or Design [email protected]

Group Publishing Director Lee Hartt Head of Editorial Operations Elina Patler four of the fi ve feature articles in this issue Subeditor Brett Gamston Commercial Editorial Manager Stuart Willes The fact that focus on MiFID II, which becomes law at the start of 2018, wasn’t planned; it just worked out that way, based on the topics that Senior Marketing Executive Louise Sheppey Tel: +44 (0) 20 7316 9476 are front-of-mind for data professionals right now—hardly surprising, given that with [email protected] less than fi ve months to go until fi rms must be compliant with the new law, there is still InfoPro Digital much to be done. 55 Broad Street 22nd Floor This is true for just about every aspect of MiFID II pertaining to data management. New York, NY 10004, USA Tel: +1 646 736 1888 For example, Joanne Faulkner reports, when it comes to exchange data, which MiFID II forces exchanges to “disaggregate” as separate datasets so consumers can pay InfoPro Digital Haymarket House, 28–29 Haymarket for only the data that they need, user fi rms are so overwhelmed (a) by other MiFID II London SW1Y 4RX, United Kingdom Tel: +44 (0)20 7316 9000 compliance projects, and (b) the complexity of disaggregated fee models that they have asked exchanges to continue the status quo to avoid further disruption. InfoPro Digital 14th Floor (Unit 1401-3), Devon House, Taikoo Place One of those other projects cited as a distraction from strategic decisions is that 979 King’s Road Quarry Bay, Hong Kong Tel: +852 3411 4888 payment for broker research must be transparent and separate from trading com- missions, to prevent fi rms directing client fl ow to brokers as payment for research, Subscription Sales UK: Claudio de Oliveira when that broker may not offer the best execution. Many buy-side fi rms plan to Tel: +44 (0)20 7316 9271 fi nalize their research budgets soon, but have yet to receive fi rm prices for research [email protected] US: Kemuel Ramos from their brokers. And in a recent study, one-third still had no idea how they will Tel: +1 646 736 1839 [email protected] pay for research. Another pressing compliance concern is that to meet MiFID II’s trade reporting InfoPro Digital Customer Services E-mail: [email protected] requirements, fi rms must decide on an Approved Reporting Mechanism (ARM) and Tel (UK): +44 (0)1858 438800 Tel (US): +1 212 776 8075 Approved Publication Arrangement (APA). However, as Jamie Hyman reports, some Tel (Asia): +852 3411 4828 say that up to three-quarters of fi rms have yet to make (and test) their choices. In fact, some may be so late that they are not allowed by law to trade from Jan. 3. All these issues present even bigger challenges for Asia-based fi rms that deal with European counterparties or have a presence in Europe, and which are subject to MiFID, but may be unsure to what extent, causing some to integrate MiFID II-based approaches across their business, while others isolate any regional businesses that might be affected, reports Wei-Shen Wong. The levels of tardiness beg important questions: Are such last-minute To receive Inside Inside Data Data Management Management preparations by accident or design—i.e., are fi rms merely under-resourced and magazine everyevery month month you you must must subscribe to to Buy-Side Inside Market Technology Data overwhelmed, or are they deliberately dragging their heels hoping to force pan- online, Sell-SideInside Reference Technology Data online online or European regulator the European Securities and Markets Authority to cave in and orone one of ourof our multi-brand multi-brand subscription subscription delay MiFID II yet again? The other question is how investors will feel if they discover options. ForFor more more information information and subscriptionsubscription details, details, visit visit that their broker or asset manager is among those either so unprepared or playing waterstechnology.com/subscribe such a dangerous gambit. „ Max Bowie Inside Data Management (ISSN 2514-0574) is published Editor monthly (12 times a year) by Infopro Digital Risk Limited. Printed in the UK by DG3.

Published by Infopro Digital Risk Limited. Copyright Infopro Digital Risk Limited (IP), 2017. All rights reserved. No part of this publication may be reproduced, stored in or introduced into any retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of the copyright owners.

waterstechnology.com August 2017 1 1 Editor’s Letter 14 4 News Will MiFID II’s Data Disaggregation Deliver on 8 New Perspectives Cost Control Promises? 14 Will MiFID II’s Data Disaggregation By Joanne Faulkner Deliver on Cost Controls Promises? MiFID II’s data disaggregation requirements aim to reduce data costs by forcing marketplaces to unbundle datasets and sell consumers only the specifi c data they need. But this could make buying and selling data more complicated, and introduce new cost burdens, as Joanne Faulkner discovers. 18 Firms Drag Heels on MiFID II Research Rulebook Rewrite MiFID II’s ban on broker-subsidized free research will be a challenge for sell-side fi rms that must decide how how to price research so as not to lose customers who might direct trading elsewhere, without appearing to incentivize clients to trade. By Kirsten Hyde 18 22 Firms Drag Asia’s MiFID II Heels on MiFID II Compliance Countdown Research Rulebook By Wei-Shen Wong Rewrite By Kirsten Hyde

2 August 2017 waterstechnology.com August 2017

22 Asia’s MiFID II Compliance Countdown The countdown to MiFID II is starting to 30 Baking a Distributed sound like the ominous ticking of a time Ledger Layer Cake in bomb. Many details of the regulation have a Data Oven been available for some time, yet as the By Tim Bourgaize clock ticks down, questions still remain Murray over interpretation. Wei-Shen Wong fi nds out whether Asian fi rms have defused the danger or are bracing for an explosion. 26 A Costly Race to MiFID II Reporting Compliance Trade reporting and publication mechanisms are a key part of the new MiFID II legislation. So why are alarming numbers of fi rms yet to choose their providers? With a last-gasp sprint on the cards in a crowded fi eld of participants, Jamie Hyman investigates whether some 26 have left it too late. A Costly Race 30 Baking a Distributed Ledger Layer to MiFID II Cake in a Data Oven Reporting Compliance A great deal of distributed ledgers’ By Jamie potential lay in their shared data layer. Yet Hyman a curious facet of ledgers’ rapid rise is that the conversation and investment in this space has moved mostly apart from data management and data managers. Tim Bourgaize Murray explores the reasons why, and the possible opportunities as blockchain and smart contracts gain wider adoption. 34 Human Capital

waterstechnology.com For more information and readers’ feedback please join the discussion

waterstechnology.com August 2017 3 News

MDSL to Continue Data Focus Following Sale, Merger Californian private equity firm Sumeru Equity and more general IT that scale take a lot of resources.” Partners (SEP) has acquired UK-based data management on the MDSL also wants to capitalize on further cost management software vendor MDSL same platform, giving opportunities in the telecoms expense and merged it with telecoms services clients a full picture of management area, where the vendor has provider Telesoft—a former competitor to the total cost of owner- been “consistently picking up a lot of new MDSL’s Telecom Expense Manager tool— ship of their IT and business,” Mendoza says. However, this which SEP acquired less than a year ago. technology, he adds. made it hard to scale fast enough to take Following the acquisition, SEP has This is not a big stretch advantage of the new business while also Ben Mendoza, MDSL combined the companies under the MDSL from the company’s looking after its more than 100 existing finan- brand, and appointed Telesoft chief execu- roots, Mendoza says. “Managing software- cial clients. “Having this cash injection and tive Charles Layne CEO of the merged type subscriptions like Salesforce is very backing from SEP means that we can feel vendor, while MDSL founder and CEO Ben similar to managing market data—in the way much more comfortable about taking on Mendoza becomes chairman. Mendoza that they pay for the subscription, they need new work and becoming a market leader in describes his new responsibilities as a to be entitled to various users, and you have technology expense management,” he says. “promotional role” which involves “speaking licenses for them. It wasn’t a big leap for us “Our resources were starting to get stretched, to customers about new innovation, particu- to be able to do cloud expense manage- and now we can ring-fence them better for larly around financial services.” ment as another category for companies,” our market data customers. This gives us While MDSL was founded as a market he adds. more stability and the ability to grow.” data expense management company in This expansion has meant that the Mendoza says that MDSL remains 1995, Mendoza says that market data is just company’s increased business in recent focused on financial technology and market one of class of technology that its custom- years has outpaced its ability to grow organ- data: “Market data and our Index Licensing ers now need to manage. Many clients also ically, prompting the vendor to seek outside Manager are a very big part of our business. require tools to manage telecoms and trader investment. Mendoza says some of the We worked to establish a leadership role in systems, and the vendor is also looking at vendor’s recent customers include Face- that space. Why would we walk away from managing cloud services, co-location costs book and Uber, adding that “companies of it? That would be crazy.”

Singer Taps Torstone Tech for TP Icap Picks Bloomberg for MiFID II Solution MiFID II Compliance

N+1 Singer, an independent corporate brokering, trading and advisory London-based interdealer broker TP Icap has house, has selected Torstone Technology’s InfernoRC module to selected the Bloomberg Entity Exchange plat- comply with transaction reporting requirements under MiFID II. form to help clients ensure compliance with Torstone, a London-based post-trade securities and derivatives MiFID II. processing provider, announced in March that it was live-testing the According to TP Icap, Bloomberg’s plat- module with clients. InfernoRC provides for MiFID II’s wider range of form is secure, web-based and will centralize financial instruments and disclosure of mandatory data. The module the exchange of information required by the sources and validates data, as well as accounting for data security, directive. privacy and quality requirements. It also enables transaction reporting Nicolas Breteau, TP Icap “MiFID II will impose significant require- to multiple ARMs. ments on firms to share and collect data from N+1 Singer chief executive Tim Cockroft says the company has a their clients. We want to help our clients to quickly understand what long-standing relationship with Torstone and has used the Inferno the new rules will mean to their trading relationships, especially platform for many years. around trade execution, reporting and transparency,” says Nicolas “The modular platform provides us with a flexible, easily scalable Breteau, TP Icap’s global broking chief, in a statement. solution that enables us to effectively grow our business and respond The platform also allows for the distribution and management of to evolving market and regulatory requirements in a timely manner,” venue-related documentation and contracts. TP Icap businesses Cockroft says in a statement, adding that the company will be ready have applied to operate Organized Trading Facilities under MiFID II, for MiFID II’s January 2018 implementation deadline. the company says.

4 August 2017 waterstechnology.com News

PE Firm TCV Buys Into Morningstar Takes Stake Thomson Reuters AxiomSL Private equity fi rm TCV Expands Tick History has acquired an undisclosed equity in Fund Rating Partner stake in risk data management and Service Thomson Reuters has regulatory reporting technology Chicago-based data and investment rolled out version 2.0 of its Tick History historical data service, provider AxiomSL. The investment research provider Morningstar has will accelerate growth, and as part featuring greater depth and breadth acquired 40 percent of ESG (environ- of the deal, TCV founding general of historical time-series data, more mental, social and governance) partner Rick Kimball and principal content sets, and improved search Nari Ansari will become advisors to research and ratings vendor Sustaina- capabilities, to help fi rms develop AxiomSL’s board of directors. The lytics to bolster its sustainability strat- algorithmic trading strategies and strategic investment is AxiomSL’s fi rst egy. Morningstar and Sustainalytics ensure compliance with aspects of Kunal Kapoor, the upcoming MiFID II regulation. institutional fi nancing since the vendor Morningstar became partners two years ago to was founded in 1991. Since 1995, develop the Morningstar Sustainability The service captures data from the vendor’s Elektron Real-Time TCV has invested more than $9 billion Rating for global mutual and exchange-traded funds, in tech companies. Feeds, and provides reference which launched in March 2016 and now covers more than data covering exchange-traded 35,000 funds, followed in October by a Global Sustainabil- ING, Bloomberg Ally for and over-the-counter instruments ity Index Family, which comprises 27 global equity indexes traded on more than 500 venues, Emerging FX Indexes Dutch geared toward sustainable investing. Morningstar has dating back to 1996. banking group ING has developed also since released company-level ESG metrics for “The markets have moved a family of global emerging markets companies held by mutual funds and ETFs, and a tool to towards greater use of quantitative, currency indexes in partnership screen portfolios for ethical issues. passive and systematic investment with data giant Bloomberg, to give strategies, and inclusion of “Enhancing this relationship enables us to leverage the clients “a simpler and transparent quantitative factors in fundamental way” to gain exposure to emerging expertise Sustainalytics has built over the last 25 years, investment styles, all of which are markets currencies. The Bloomberg and build on the momentum we started with the launch of driving the need for more data. The ING Global Emerging Markets FX the Sustainability Rating,” says Morningstar chief execu- new features offer both buy-side Indices will enable clients to track tive Kunal Kapoor in a statement. “We have the largest and sell-side [fi rms] a powerful the performance of a basket of 12 ESG fund coverage universe today, and we look forward trading and compliance tool that emerging market currencies against to continuing to meet the increasingly sophisticated ESG is both fl exible and scalable,” says the US dollar, and will offer tradable Brennan Carley, global head of needs and requirements of our clients.” long-only and long-short versions. Enterprise proposition and product As part of the deal, Steven Smit, head of sustainability Bloomberg also calculates and management at Thomson Reuters. administers the indexes. at Morningstar, will join Sustainalytics’ board of directors.

SIX Financial Launches Regulatory Data Hub

SIX Financial Information has announced the climate where the same “This platform, with its ‘ready-to- launch of its Regulatory Hub, a platform data points are required at consume’ data, will help banks automate designed to improve the exchange of different levels for various and scale their operations, reducing costs regulatory data and documentation between regulations. and increasing the speed of compliance. asset managers, banks and other market The data, together with Instead of focusing on each regulation participants. accompanying information individually, clients can depend on SIX to The new platform underpins the vendor’s and documents, can be support regulatory compliance for current Phil Lynch, SIX existing MiFID II data product and its standardized, structured and future regulations in tandem. Retail document generation and distribution and exchanged in real time and in the proper investors will benefit from a robust industry services related to the Packaged Retail and format. Users can request information and platform that helps make the investment Insurance-based Investment Products documents on demand at the point of sale, market more secure and efficient, and allows regulation, and makes it easier for banks to which SIX says will cut the costs associated access [to] a diverse global investment automate their internal processes, according with multiple daily requests. portfolio with maximum transparency,” says to SIX. The Regulatory Hub also aims to enable Phil Lynch, head of products, market and The Regulatory Hub acts as a central two-way connections and beneficial feedback strategy at SIX Financial Information, in a source for investor protection data in a loops between buy-side and sell-side firms. statement.

waterstechnology.com August 2017 5 News

Sentieo Debuts Module to Manage Data, Notes in Desktop San Francisco-based startup financial data system, but they don’t get anything out in terminal provider Sentieo has released an return—it’s a one-way tool that gives integrated Research Management System management insight into analyst decisions,” (RMS) component to its data platform, which he says. “We wanted to make a system enables users to view, annotate, and share where the analyst gets more out of it, so content that exists within Sentieo or else- they’ll use it more, and you’ll have a greater where in their organizations. depth of data in there, so management gets The RMS is accessible via a tab in the more data, and the RMS becomes ‘stickier’ Notebook section of Sentieo’s dashboard and more valuable.” that captures all data saved in the Note- The look and feel of the RMS is similar to Sentieo’s RMS dashboard book—such as research, an analyst’s own Evernote or Microsoft OneNote, but with notes, and third-party reports and publica- “The RMS allows you to pick and choose specialist industry and geographic tagging tions—and adds an extra layer of insight, content from all data within the Sentieo plat- built in. “We’re not trying to wrest people off dubbed a Thesis Strategy, which displays a form,” Shah says. “An analyst creating a those platforms, so we’ve been building user’s strategy, along with a company’s memo before earnings season can go into synchs between them to allow you to search expected earnings, and details such as which the platform and search for all items tagged all notes in other platforms from Sentieo,” analyst covers the company. This can be with, for example, gross margin, and group Shah says. modified with as much information as users them together, then drag all content—such Now that the beta test is over, Shah says want, says Sentieo co-founder and chief as comments from company executives— the vendor will begin rolling out the RMS over executive Alap Shah. into a memo.” the coming weeks to around 20 firms— Below this, the RMS displays a Goal Case He adds that the RMS capabilities are a around half of which are existing clients, and of major risk areas or data items yet to be combination of client demand and what the half of which are new clients attracted by the assessed. Users can type notes directly into vendor “wanted to do from day one,” based RMS itself—that have signed up to use it, this section, or drag and drop information on Shah’s own experience as an analyst. “In including hedge funds, mutual funds, regis- from their own notes, and link directly to many other RMSs… it’s 95 percent incum- tered investment advisors, and some sell- documents stored elsewhere. bent on the analyst to put data into the side firms.

Illuminate Takes $1.6 Million Stake in Wall Street Horizon Beefs Up Big Data Platform Provider TickSmith Enchilada with Europe, Asia Data Venture capital firm Illuminate Financial, which was founded by former Event data provider Wall Street Horizon has expanded the coverage Icap executive Mark Beeston, has taken a C$2 million ($1.6 million) of data within its Enchilada platform by nearly 1,000 new companies. stake in Montreal-based tick data storage and Big Data analytics plat- The increased offering, which includes data for all 40-plus event form provider TickSmith. types that the company tracks, includes the full roster of constituents This is the first institutional investment for TickSmith, which operates for all major European and Asian indexes. the TickVault data platform and counts CME Group and the National Previously the vendor offered a limited international dataset à la Bank of Canada among its clients. It will use the funding to further carte. Now, the full Enchilada platform, which tracks event types such commercialize the product and grow internationally. Beeston, manag- as earnings dates, dividend dates, options expiration dates, splits, ing partner at Illuminate, says the funding will be used “to get boots on spinoffs and investor conferences, has been extended beyond the the ground in the two major financial centers and have some full-time 5,000 North American companies it covered to include datasets for coverage in New York and London.” TickSmith is currently based FTSE 100, CAC 40, DAX 30, Hang Seng 50, Nikkei 225, EAFE and mainly in Canada. Dow Jones Stoxx 1000 constituent companies. Illuminate says one of the motives for investing in TickSmith is that “’We’re confident that we’ll bring the same level of meticulousness the company “provides the for which we’ve become known to the collection of event data on missing link” that financial waterstechnology.com non-North American companies,” says Barry Star, chief executive of institutions need to central- For more information and readers’ Wall Street Horizon, in a statement. ize data from external and feedback please join the discussion The expanded dataset is in the process of being rolled out and the internal sources. vendor says it will be fully live by September 1.

6 August 2017 waterstechnology.com News

NZFMA Taps Bloomberg’s B-Pipe Feed for Rates Pricing

The New Zealand Financial Markets will change from spread to an outright yield, or Association (NZFMA), the professional body of price basis, eliminating the need to calculate the country’s institutional banking profession, “We’re gaining traction in part the closing rate manually, and reducing the has struck a deal to use Bloomberg’s B-Pipe probability of input or computation errors. consolidated market data feed to source real- because more and more financial Market data content and distribution is one time prices for calculating end-of-day market firms are investing in enterprise of the fastest-growing areas for Bloomberg in rates for New Zealand over-the-counter applications for trading or risk Asia, says Heena Chakravorti, head of benchmarks. management that need to Oceania at Bloomberg. “We’re gaining traction The data from B-Pipe will be used to in part because more and more financial firms consume market data in real calculate prices for a range of tradable financial are investing in enterprise applications for instruments, such as New Zealand government time.” Heena Chakravorti, trading or risk management that need to bonds, New Zealand swap closes, New Bloomberg consume market data in real time. Application Zealand bills/Libor; New Zealand OIS close developers and front-office users are looking and New Zealand credit markets. Bloomberg for comprehensive, trusted data from will also provide calculated spread data for Zealand rates by NZFMA, including real-time Bloomberg to nourish a wide array of their fixed-rate credit bonds, and discount margins and reference data. third-party, internal proprietary, and for floating-rate notes to promote consistency non-display (black box) applications,” she of data for market participants marking end-of- Greater Accuracy, Transparency says. “Whether you are a bank, broker, day positions. The provision of closing market reference rates buy-side or sell-side [firm], investing in The decision to use an independent third- calculated based on prices from B-Pipe will enterprise technology that delivers the party data source instead of prices submitted deliver significant improvements to market distribution of reliable market and reference by banks follows a 2016 review of the data accuracy and transparency, officials say. The data provides depth and transparency that capture and calculation methodology for New format of the credit market closing rate data can greatly increase efficiency.”

Bloomberg Latest to Receive Buy-Side Eyes Outsourced Data ARM Nod from UK Regulator Management as MiFID II Looms

Bloomberg has gained approval from the Financial With less than six months to go until MiFID II becomes law in Europe, Conduct Authority (FCA) to start testing its Approved as much as 90 percent of buy-side firms are at risk of not being Reporting Mechanism (ARM) and its Approved compliant when the deadline hits, according to a new survey by Publication Arrangement (APA) trade reporting capa- regulatory consultancy JWG. bilities with the FCA’s Market Data Processor (MDP) JWG analysts found that 90 percent of the firms they surveyed system under MiFID II. reported a medium or high risk of non-compliance by January 2018, The connection to the MDP will allow the trans- when the regulation takes effect. Alejandro Perez, Bloomberg mission of transaction reports and transparency Data management solutions and record-keeping are require- calculation data to the FCA when MiFID II kicks in ments that some firms told JWG they plan to outsource, but the on Jan. 3, 2018. Bloomberg currently operates an ARM under MiFID I most-outsourced function is reporting, with 25 percent of firms and expects to receive authorization from the FCA to operate a planning to contract out this requirement. The survey found that MiFID II -compliant ARM and APA in the second half of 2017. most firms plan to keep research, trading and client management “With this approval, we have taken one more step towards provid- in-house. According to JWG, that may be because in areas includ- ing firms with the necessary reporting capabilities, and a fully integrated ing research, inducements, and best execution, a quarter of firms suite of MiFID II solutions across all their needs and workflows,” says report they have not finished analyzing the MiFID II requirements. Alejandro Perez, global head of post-trade solutions at Bloomberg, in The survey found 48 percent of the buy-side firms surveyed have a statement. allocated a budget of £2 million ($2.6 million) or less toward imple- Clients can send test data to the Bloomberg Regulatory Hub, which mentation, and 45 percent have teams of less than five people is a full-service platform for regulatory reporting-related requirements working on MiFID II compliance, with just 15 percent of respondents that connects to the Bloomberg ARM and APA. allocating budgets of more than £10 million toward implementation.

waterstechnology.com August 2017 7 New Perspective

EDM Council: Data Quality Challenges Still Loom Large The EDM Council’s latest benchmarking survey fi nds fi rms doing well on organization, but warns there is still a long way to go before they will achieve data management quality benchmarks. By Jamie Hyman.

he fi nancial industry is making with control functions—you see that has harmonized data meaning across good progress on data infra- organizational alignment improv- internal departments, according to Tstructure issues, but still faces ing,” he says. “They’re also doing a the survey. “They’re lagging because signifi cant challenges, with just 13 lot of work on the data reconcilia- it’s hard to do,” he says. “These are percent achieving set benchmarks for tion challenges, so lineage, glossary, complex environments. They have to data quality, according to the EDM harmonization, data inventories… unravel the fl ow of data and unravel Council’s 2017 Data Management [there’s] lots of hard work underway.” the production processes, the lineage Benchmarking Survey Report. The other side of the coin is fi xing challenges they have, getting all of The survey asked more than issues within the data itself, Atkin says, the data identifi ed and aligning it to 150 fi nancial institutions 22 ques- Mike Atkin “aligning them to meaning, [iden- contractual meaning versus applica- tions designed to gauge how fi rms EDM Council tifying] their critical data attributes, tions meaning. That’s really hard to are performing in six areas deemed managing the root cause of the prob- do. Fully implementing data manage- critical to establishing quality data: data lems, and things of that nature. We are ment governance processes in the way management program, stakeholder still hard at work, but we haven’t fi xed people operate? Hard to do. Making commitment, governance implemen- that problem.” sure all the roles responsibilities are tation, content infrastructure, data Within that problem lie two key defi ned and fi lled and coordinated quality control, and ecosystem. Those data challenges: fi xing the data itself, across a global bank? Hard to do.” focus areas are extracted from the EDM and ensuring the level of quality Task diffi culty isn’t the only area Council’s Data Management Capability needed for each application. where fi rms lag. Atkin says stake- Assessment Model (DCAM). “When I look at fi xing the data, holder commitment is stagnant, and Mike Atkin, EDM Council I really divide it up into infrastruc- after fi ve or six years of eff ort, there managing director, says the indus- ture requirements: so that is adopting are still troubling questions as to why, try is doing well at “the underlying precise identifi ers, adopting common outside of regulatory obligations, organizational things that are needed language based on meaning related fi nancial institutions should work in order to get data integrated into the to the contractual obligations of the toward trusted, quality data. way they operate and [to get] every- instruments and processes they’re The good news is fully commit- one coordinated and aligned” such as involved in, [and] having identifi ers ted fi rms are already seeing payoff . implementing infrastructure and set- so that you can link data across all “Organizations that understand why ting up governance processes. the places data sits,” Atkin says. “You they’re doing data management, have According to the study, more than combine that with data quality man- made a commitment to it, support 70 percent of the industry—90 per- agement—understanding what the their offi ce of data management and cent of G-SIBs [Globally Systemically business is using, translating that into hired their CDOs, and accept the Important Banks]—now have a chief data, separating data from calculation, proposition that data is an essential data offi cer, and 55 percent of G-SIBs unraveling the manufacturing process, factor of input are doing better across report solid progress in appoint- identifying critical data elements, the board in every measure by far, ing staff directly responsible for data aligning them with critical business signifi cantly,” Atkin says. management. elements—and do all that from a fi t- While regulatory compliance is Atkin also sees positive progress for-purpose perspective. What level of still the number one driver for fi rms’ in how fi rms are collaborating across quality is needed for what application? data improvements, he says once that varying parts of their ecosystems. Some of it is perfect data, some of it is goal is achieved, fi rms can start putting “IT coordinating with data ‘good-enough’ data, depending on the their data to work on analysis, insight, coordinating with operations coordi- application.” customer service, product engineering nating with businesses coordinating Only 8 percent of the industry and reducing operational costs. „

8 August 2017 waterstechnology.com New Perspective

FCA Worried by Lack of Readiness for MiFID II Reporting

The UK watchdog accepts “scale of the challenge” but urges fi rms to “crack on” with putting data reporting apparatus in place ahead of MiFID II’s introduction in January 2018, reports Joanne Faulkner.

he large number of fi rms that Processor—which replaces its legacy have yet to put in place—or Zen system—and is proceeding T don’t know how they will smoothly so far, starting with ARMs address—the transaction and trade before expanding to include APAs, reporting requirements of MiFID trading venues and those who have II, which becomes European law in to connect to provide commodity less than six months’ time, is a major derivatives position reports. cause of concern for the Financial “By enabling fi rms to test, we can Conduct Authority (FCA), according make sure we can absorb their data to Stephen Hanks, the UK regulator’s and connect and send it on to ESMA market policy manager. [the European Securities and Markets Speaking at a MiFID II event hosted Authority], and also refi ne the way in by WatersTechnology, Hanks urged fi rms which our own system works so that it to make decisions about their Approved is as good as possible when we go live Reporting Mechanisms (ARMs) and in January,” he said. Approved Publication Arrangement (APA) providers soon. LEI Queries ARMs will become regulated Hanks also noted that the FCA is entities under MiFID II, which means “The impression we get is that there is going having to devote a lot of its resources some of the burden for the accuracy to responding to questions about Legal and timeliness of the data that is to be an awful lot of work to be done in the Entity Identifi ers (LEIs), despite the reported will fall on them. Whereas final quarter of the year in this regard. This current “No LEI, No Trade” stance in the past ARMs could be less con- presents a significant challenge for APAs, that requires all entities trading with cerned with the quality of the data ARMs, and other service providers who are European counterparties across all fl owing through them, they will now going to be assisting firms in this respect. I asset classes to obtain the identifi ers, have some responsibility for late and store them in their reporting system, incomplete reports. would urge firms to crack on with putting in and put the necessary maintenance place those arrangements” Stephen Hanks, procedures in place to ensure LEIs are Firms Urged to ‘Crack On’ Financial Conduct Authority renewed on a timely basis. If fi rms try “The impression we get is that there is to execute a trade then obtain an LEI going to be an awful lot of work to be before submitting their trade report, done in the fi nal quarter of the year in he said. “The [applications] dealing the report will be rejected. this regard. This presents a signifi cant with ARMs will be slightly slower “LEIs take up a large amount of challenge for APAs, ARMs, and other than those dealing with APAs because our time,” he said. “There is also dis- service providers who are going to be the ARMs have to connect to our cussion within ESMA about LEIs. We assisting fi rms in this respect. I would Market Data Processor and go through occasionally hear rumors that such- urge fi rms to crack on with putting in appropriate testing before they can be and-such competent authority has said place those arrangements,” Hanks said. authorized, which is not the case with such-and-such about the use of LEIs, As of July 3, the FCA had received APAs.” and that you don’t need them. That is 12 applications for authorization from not true from the discussion we have data reporting service providers, and Market Data Processor Testing been having within ESMA. Everyone it hopes to confi rm authorization for Hanks added that testing has is sticking to what the legislation them “within the next month or two,” begun with the FCA’s Market Data requires on that.” „

waterstechnology.com August 2017 9 New Perspective

Thasos Completes ‘Streams’ Lineup of Mobile Location Data The vendor sources and aggregates signals from mobile devices to draw conclusions about shopper movements and employee numbers, reports Max Bowie.

ew York-based location data fund clients believe can be a leading same-store transactions, revenues and analytics provider Thasos indicator of store and company rev- attandance. “With Streams, we have NGroup recently rolled out the enues—is collected from providers of developed a platform where we can last of three components to its Streams apps on shoppers’ cell phones, which deliver a time series of the aggregate time-series data service of data such use a combination of GPS data and number of sales, patients [in the case of as consumer traffi c to retail stores or Wifi triangulation to deliver location hospitals] or employees for a company, a company’s headcount, which can be data accurate to between 10 and two enabling the end user to ask and answer leading indicators of company-level or meters. This allows the vendor to say those questions on their own without broader macroeconomic health, based with high precision where an individ- needing [support from] us or a sophis- on mobile phone location signals. ual—without identifying a cell phone’s ticated data science team.” The Streams are broadly seg- To access the data, Thasos gives mented collections of ticker-by-ticker clients a secure access to Amazon data for metrics that can be measured “With Streams, we have developed a platform Web Services, where it hosts the data, based on the presence and movement from where users can download it into of people in or to certain locations. where we can deliver a time series of the Microsoft Excel spreadsheets, Tableau, Thasos launched its Consumer Streams aggregate number of sales, patients [in or their chosen application. service in March, which covers 150 the case of hospitals] or employees for a Collins says almost all the vendor’s companies, and monitors foot traffi c in company.” John Collins, Thasos clients buy all the streams. A sub-set of retail stores and restaurants, for exam- these, however, prefer to buy streams ple. Shortly thereafter, the vendor for individual companies, though launched its Non-Consumer Streams, owner, because the data is anonymized the vendor has a minimum required covering 200 companies and provid- and aggregated—was at a specifi c time. number of streams that clients must buy ing fi gures for the number of people Thasos then uses models built and to make providing the service—with employed—and hours worked—in tested over the six years since the com- all the support and research around manufacturing jobs, or the number of pany was founded to analyze patterns in it—worthwhile. patients staying in a hospital. the data to establish whether a particu- Although the most interest so The most recent Stream, launched lar phone signal belongs to a shopper or far has come from hedge funds, co- around two months ago, is its Mall a store employee—which also allows it founder, chief executive and chairman REITS Stream, which analyzes con- to create a dataset of employee num- Greg Skibiski says other interested sumer foot traffi c within shopping bers—in the case of retail stores and parties include the types of companies malls, to determine with greater pre- malls, or to an inpatient versus a doctor, covered by the data—for example, cision which stores they are visiting, nurse or other hospital employee. shopping mall owner-operators would how long they spend there, and what “When we fi rst got started, we want to know total traffi c to their loca- impact that could potentially have on a did a lot of bespoke work. Clients tions as well as to competitors’ sites, retailer’s earnings. had questions, and we would dig into while investors in mortgage-backed For example, clients could sub- those—such as same-store sales, or securities would want to know how scribe to a stream that delivers one what employment is in a specifi c area— to value the components of an MBS fi gure daily for the aggregate traf- but it was very siloed, and we would that might include shopping malls, and fi c to all 2,000 Home Depot stores end up delivering a bespoke report,” retailers renting space in those malls across the US, streams aggregated says John Collins, chief product offi cer would want to know foot traffi c num- by region, or individual streams for at Thasos, which also provides weekly bers, since a drop in overall numbers retail traffi c fi gures at each of those and quarterly estimates of company might help them renegotiate their lease 2,000 stores. The data—which hedge fundamentals, such as same-store sales, agreements. „

10 August 2017 waterstechnology.com New Perspective

Nasdaq Reaps Rewards from Information Investment, Hails Hub Potential

Index growth contributed to more positive results for Nasdaq’s data business, with its Analytics Hub and buy-side focus singled out as a “long-term” growth opportunity for the division going forward, reports Joanne Faulkner.

asdaq’s second-quarter results recently launched Analytics Hub as signals, she said, as well as bringing included “record” revenue of a “long-term opportunity,” noting in more third-party data to provide N$144 million—up $10 million that the Hub has a number of robust, more “driver information” that would from Q2 2016—for its information proprietary and third-party datasets as be “relevant for a ‘quantamental’ shop Services division, which make up 24 well as an analytics layer that leverages or a pure [quantitative trading] shop percent of the exchange’s total net machine intelligence, which is gener- that’s looking at ways to fi nd and use revenues, with offi cials citing index ating “signifi cant interest” from the data to make a fundamental decision, data for its recent success and pointing buy side. or using data to make a technical deci- to its new Analytics Hub as a potential The exchange currently has 20 sion in terms of their investments.” contributor to future revenues. Adena fi rms piloting various functionalities Because the Analytics Hub has been Along with growth in revenue Friedman of the service, and hopes to transform built entirely in the cloud, “it allows from proprietary data products, in a Nasdaq those trials into subscription-paying clients to come in with multiple types call discussing the Q2 results, Nasdaq customers in the second half of this of interfaces: it could be FIX, APIs, president and chief executive Adena year, as well as expanding the products we can multicast the data out, they Friedman highlighted positive perfor- to include new datasets and func- can provide data into the platform, mance from its index business as a key tionality, Friedman said. “We have they can get as much data or as little contributor to the division’s growth. 20 clients who are currently piloting data out of the platform in real time or With increased competition in various aspects of the data. They may end-of-day. It allows us to grow and the index space and the pricing pres- be piloting one datafeed; they may be expand what we’re doing in multiple sures aff ecting exchange-traded fund piloting all the datafeeds; they may be ways. It’s meant to be for the entire managers, Friedman responded to looking specifi cally at the analytics industry, but certainly quantitatively- questions about the pricing of Nasdaq’s that we’re creating and… back-testing oriented buy-side strategies are a good indexes verses larger incumbent pro- [them] against their models and starting point for us,” Friedman adds. viders by saying that pricing depends making sure that those models do in on the type of index being created. fact have a positive impact from the Subscription Service “If it’s a very advanced smart beta data,” she said. She declined to speculate on how index like we have from our Dorsey much revenue could be generated Wright business, we do tend to see Machine-Learning Opportunities from the Analytics Hub, saying that that has higher value, and there’s more With various quant strategies being the exchange needs to conduct more IP that we’re bringing to the table [so] adopted by an increasing number testing to see how clients actually that tends to have a higher price point of asset managers, looking to glean interact with the product, and that at verses a benchmark index where we insights from the growing mountain of this stage, the addressable market is try to partner to be a low-cost provider data available to them, Nasdaq has been unknown. However, she gave details to our ETF sponsors. It depends on the exploring ways it can capitalize on this. of the commercial model, which will type of index that we’re calculating on While Friedman says the exchange be subscription-based. “It will be behalf our clients or that we’re gen- isn’t going after one particular type priced as a pay-monthly fee for either erating and then partnering with our of client with its product strategy or a third-party dataset, or a diff erent clients to bring to market,” she said. its Analytics Hub, she did say these monthly fee if you want to take ana- create opportunities that Nasdaq can lytics. There is established pricing that ‘Signifi cant Interest’ in Analytics tap into. Going forward, the exchange we’re working on and making sure to Discussing future growth, Friedman is looking to apply machine learning make sure clients see it as a subscrip- also singled out the exchange’s to data it holds internally to pull out tion service.” „

waterstechnology.com August 2017 11 New Perspective

Ex-Soros’ Kerstein, INSC Ally for Outsourced Data Admin Service INSC, an established IT services provider, is broadening its offering into the market data management space via a partnership with a well-known market data management professional, reports Max Bowie.

tamford, Conn.-based IT and netting the same data across mul- “We provide an initial report. support and services provider tiple applications, and also provides Then it’s up to the client whether they SInnovative Network Solutions exchange reporting and introduces have internal compliance staff take Corp has partnered with veteran data audit trails to ensure any data acquisi- over and fi x any issues, or whether and trading fl oor technology engineer tions go through the proper approval they ask us to help them achieve that Steven Kerstein to help the company and authorization processes. The core in a consulting capacity,” Kerstein roll out an outsourced market data MDA service off ers an initial DACS says. “Ultimately, it’s a win-win for us, management service, dubbed Market “best practice” assessment, and pro- clients, and also for exchanges, as most Data Administration. vides new user setup and entitlement likely they will get more timely and The service is aimed at fi rms with changes, authorization workfl ows, accurate reporting.” fewer than 1,000 data consumers who use Thomson Reuters’ DACS entitle- Kerstein’s Progress ments system for usage reporting and As relationship manager at INSC, invoice reconciliation but either don’t “We provide an initial report. Then it’s up Kerstein will be part of INSC’s initial want to manage the burden of dealing to the client whether they have internal assessment of a fi rm’s DACS imple- with entitlements issues themselves, or mentation, and will be responsible don’t have suffi cient expertise to know compliance staff take over and fix any for training INSC’s network center where data is being used and whether issues, or whether they ask us to help staff to take over administration of they are compliant with their data them achieve that in a consulting capacity. DACS on clients’ behalf. Before licenses. Ultimately, it’s a win-win for us, clients, and INSC, Kerstein was a global product manager at Thomson Reuters, where ‘Sweet Spot’ also for exchanges, as most likely they will he spent almost fi ve years, prior to “The tier-one fi rms with plenty of get more timely and accurate reporting.” which he was a business analyst for [market data administration] staff are Steven Kerstein, Innovative Network trading applications at GM Asset not what we’re looking at, but rather Solutions Corp Management, worked on Morgan the mid- and lower-tier fi rms looking Stanley Smith Barney’s enterprise to save costs… by paying a recurring software engineering team, and fee every month based on the number production of DAD declaration spent six and a half years as trading of users,” Kerstein says. “A thousand reports, plus 24/7 helpdesk and secure fl oor technology manager at Soros users or less is the sweet spot. Most of VPN access. A premium MDA service Fund Management. Before that, he the opportunities we’re chasing are provides the same features as the core held various systems administration in the range of 100 to 200 users. Any service plus data notifi cation assess- and engineering roles at JP Morgan, fi rms with less than that wouldn’t be ments, product change notifi cation Citigroup, DKB Financial products, cost eff ective for us, and also, fi rms reviews, “map collects” processing, HSBC Securities, Chemical Bank and with fewer users are unlikely to make and usage and audit reports. the Bank of Nova Scotia. many changes month-to-month,” and After leaving Thomson Reuters, would have less need for such a service, Remote Monitoring Kerstein says he started working on he adds. INSC’s areas of expertise include this initiative on his own, but lacked The Market Data Administration client onboarding and cyber security, business development expertise, service will help fi rms control exchange so by installing a dedicated circuit whereas INSC has an existing base fees by profi ling usage patterns, ensur- and router, the company can monitor of clients and contacts, staff already ing accurate entitlements, identifying a fi rm’s DACS installation remotely familiar with fi rm’s environments, any under-reporting to avoid fi nes, without any data leaving the client site. and resources around marketing. „

12 August 2017 waterstechnology.com New Perspective

Money.Net Adds Another Bloomberg Exec for Investment Banking Push

After taking aim at Bloomberg in the front offi ce with its budget data terminal, Money.Net is now targeting other area of data consumption—investment banking and corporate treasury—pitting it against the likes of S&P Capital IQ and FactSet. Max Bowie reports on the vendor’s latest move.

ow-cost data terminal provider York-based app developer and digi- mobile interfaces, building out access Money.Net has announced tal transformation consultancy Salt through APIs, Excel and Matlab is a L the appointment of former Brook Solutions. very important part of our strategy,” Bloomberg executive Stefanos Daskalakis left Bloomberg to Downey says. “A lot of people doing Daskalakis as chief product offi cer to work at innovative startups “doing analysis in investment banking or lead an expansion of the vendor’s API things that nobody has seen before,” corporate treasury roles just interact and Microsoft Excel add-in business Downey says. “He’s a very innova- with spreadsheets… and we believe in a bid to drive adoption of its solu- tive person looking for a home where we can innovate and disrupt in that tions among investment banking and innovation happens.” space just as we have in the real-time, corporate treasury clients. Prior to joining Bloomberg in front-offi ce space.” At Bloomberg, Daskalakis was Downey says only part of this global business manager of API and proposition will rely on Money.Net Microsoft Offi ce Integration, respon- being signifi cantly cheaper than rival sible for product development and “Even though we are in the business of premium off erings—for example, business strategy for Bloomberg’s API building front-end and mobile interfaces, potentially eliminating the need for and Offi ce integration product suite, junior analysts to share access to pre- where—over his seven-year tenure— building out access through APIs, Excel mium research terminals, disrupting he worked with Money.Net chief and Matlab is a very important part their workfl ow—with another aspect executive Morgan Downey during his of our strategy. A lot of people doing reacting to the churn among junior own time at the vendor. analysis in investment banking or staff typically tasked with the “heavy lifting” analysis and preparing deal Bloomberg History corporate treasury roles just interact with books, who are open to more intuitive “At Bloomberg, I ran the commodities spreadsheets… and we believe we can solutions. division, and he ran the Excel and MS innovate and disrupt in that space just as we Offi ce integration division globally. A have in the real-time, front-office space.” New Add-in Set for Q4 Launch huge part of energy market informa- Morgan Downey, Money.Net Money.Net has an existing Excel tion consumption is via add-ins, so it’s add-in—as well as existing integra- critical to be able to do that extremely tion with Matlab—with which it well,” Downey says. “Stefanos is one 2006, Daskalakis was manager of aims to compete with FactSet and of those rare product people who has securitization services at Deloitte & S&P Capital IQ, and is enhancing and a very good design aesthetic… and Touche, director of Immedient Corp’s adding to this to create a new add-in is also a very good person to have fi nancial services practice, principal of that it aims to release in the fourth involved in customer meetings—he Dell’s professional services business in quarter of this year, which Downey has very good awareness of customer the Mid-Atlantic region, and also held says he hopes will leapfrog its rivals by needs.” various senior management and engi- at least a year. Since leaving Bloomberg in 2013, neering roles after starting his career “We’ve done a lot of the back- he served as general manager for New as an analyst at Moody’s Investors end infrastructure work, so Stefanos York at Jornata, which merged with Service. is coming into a product where a lot technology and strategy consultancy of the heavy lifting is already done… BlueMetal Architects in 2014, where Disruption and Innovation and he can create a more robust and Stefanos he became client director, and was Daskalakis “Even though we are in the busi- compelling system on top of that,” most recently principal of New Money.Net ness of building front-end and Downey says. „

waterstechnology.com August 2017 13 Regulation

POWER TO THE PEOPLE: Will MiFID II Data Disaggregation Deliver on Cost Control Promises?

MiFID II’s data disaggregation attles over market data costs can disappointed. Instead, the European requirements aim to reduce data costs by be longer and bloodier than a Commission’s Regulatory Technical Bseason of Game of Thrones, just Standard (RTS) 14 instructs trading forcing marketplaces to unbundle datasets with more empathetic characters. End venues to make pre-trade and post- and sell consumers only the specifi c data users question why they should pay for trade data, which has traditionally been they need. But in reality, this seemingly data that they generate and “give” to “bundled” together, available to the simple and cost-reducing idea could make exchanges, while accusing exchanges of public in an “unbundled” fashion— buying and selling data more complicated, introducing complex data licenses and i.e., broken up into separate data items. raising fees to compensate for declin- The EC says these requirements will and introduce new cost burdens, as ing revenues in other businesses. So it’s “reduce market data costs for market Joanne Faulkner discovers. no surprise that some industry groups, participants by allowing them to which saw MiFID II as an opportunity acquire only the very specifi c pre-trade to address spiraling data costs and intro- or post-trade data they need.” Trading duce transparency around data fees, venues will have to disaggregate their lobbied hard for change. data by asset class, country of issue, Initially, some had hoped that currency and whether the data comes MiFID II would introduce caps on from auctions or continuous trading, as market data fees, though they were left requested by clients.

14 August 2017 waterstechnology.com Regulation

able for comment, though IA senior advisor for capital markets Arjun “Clients who are able to do the work in Singh-Muchelle, told Inside Market terms of analysis of their individual users Data last year that the rules represented and what data they’re using, and having a a “missed opportunity to introduce greater understanding at a granular level proper transparency to this market.” of what data items their clients require… He also said that “venues will still be able to charge for bundles of data, until will be able to take advantage of that. But a venue ‘determines’ there is a ‘request’ if they’re not able to, or don’t have the for further unbundling. As it stands, if resources to do that, then possibly not.” an asset manager only wants to pur- Michael Hodgson, Euronext chase ETF data, she will continue to be forced to purchase all equity data, even though this is irrelevant to her business.” In theory, unbundling pre- and options, and then the customer has to post-trade data should give customers select what they want and manage the Higher Priorities more fl exibility and choice, and reduce magnitude of diff erent packages now Exchanges contacted by Inside Data their market data spend. Bundled pack- available. Suddenly, you have an oner- Management were universal in their ages may be fi ne for large banks and ous, complex task on both the selling opinion that the majority of clients— asset managers, but can prove costly for and the buy side, which I don’t think preoccupied with much bigger fi sh to smaller fund managers. anybody had really thought about,” fry in the run-up to MiFID II’s go-live But in practice, while the basic the industry observer adds. date—don’t want the way they receive premise of these rules is logical, some However, Mark Spanbroek, vice data to change. David Howson, chief market participants argue that they chair of the European Principal Traders operating offi cer at Bats Europe, says have created unintended consequences Association, a division of the Futures that while “data strategy is one of the for the end users they are intended to Industry Association—which has not top fi ve costs that fi rms face… the focus benefi t in the form of both technical made this specifi c article a topic to [for most] with MiFID II is on compli- and commercial complexities. either lobby for or against—disagrees. ance.” So while data disaggregation is a Critics of RTS 14—primarily “The arguments used against this are topic of conversation, it’s not top of the vendors and exchanges—say that while not shared by EPTA. Exchanges and list of pressing issues that must be dealt the European Securities and Markets platforms will do their utmost to argue with, he says. Authority’s (ESMA’s) intentions around that this will increase costs, but this is However, data strategy teams still reducing the cost of market data and not true. The business model of some want to know want to know how making it more readily available may exchanges is completely reliant on data Bats is approaching the obligations, be well-intended, they will increase fees, clearing costs and trading fees, Howson adds. “At the moment, they’re the overall cost of data as a result of the almost split up evenly,” he says. “EPTA asking whether or not we’re going to level of customization required to meet is of the opinion that after decreasing make their lives complicated from day client requests, and create an added the trading fees over time, the data fees one with our data policy. The strong administrative burden. are now the one to lower signifi cantly. guide has been to keep our current “If one took the letter of this The end user has received great benefi t data policy intact and then introduce a regulation and applied it to some of from the decrease is trading fees, and new one that incorporates data disag- the more larger and sophisticated we hope to achieve the same in data gregation.” The challenge for venues, exchanges, there could be thousands fees. The huge amount of data fees is data consumers and data vendors of price-line items, if you take into an area of concern for all end users, is the increase in the complexity of consideration all the combination of including pension funds, and one we the fee schedules that disaggregation sub-sets that should be made available bring to attention of the regulator will create, Howson says. “If you’re to sale,” notes one industry observer. internationally,” Spanbroek adds. going to off er it separately, you need Commercially, this means that “the Fund management industry body to charge for it separately as well. person selling the data has to present the Investment Association (IA) was Bats will off er those price points in a a price list of thousands of diff erent unable to make a spokesperson avail- separate commercial policy—expected

waterstechnology.com August 2017 15 Regulation

in September—alongside its existing all manner of reasons, be it increased commercial policy.” timestamping or other areas. It’s not Howson says he’s unaware of any “The data disaggregation rules have something you can look at in isolation clients looking to make major changes always seemed to me to be misconceived and say ‘Does this piece make a change, to their data architecture from day because they focus on just one aspect— or does that piece make a change’.” one. “People are focused on MiFID II data content—and do not address the Graf also expresses doubt at whether compliance fi rst. Next year, they may other key issue of what data access and RTS 14 will ultimately result in lower start to look at how to most effi ciently data costs for end users as fi nancial fi rms architect their data strategies and usage rights are required by MiFID to seek to satisfy an insatiable appetite for their internal data consumption, both be made available for any given data data. “The entire world is going to within larger and niche organizations. content package.” Reg Pritchard, Rights shift and become a much more data- If I’m a Nordic broker, it’s quite a neat Management Associates driven economy. More data is going opportunity to say ‘I only care about to be consumed on an ongoing basis my region’s data and that’s all I want to by organizations in order to run their receive and pay for.’” Beyond retail customers, Graf says business. Data costs may go up because Hartmut Graf, head of data services he can’t predict what types of clients more data is being used. Data is going at Deutsche Börse, agrees: With banks’ would benefi t for the disaggregation, to be a major item in banks and success- entire business model ultimately at and is also unsure of the extent to which ful organizations. They’re going to use stake, data fees may not be enough to clients would choose to take up the data in a much broader fashion going distract fi rms’ focus from “business- new pre- and post-trade data options forward.” critical” items. “They defi nitely will now available to them. “A signifi cant Others agree that the regulations revisit their data policy and their number of clients prefer the existing are unlikely to result in lower costs data architecture at some point, but structure,” he said. overall. “The data disaggregation rules it will take them some time. We do For Michael Hodgson, head of have always seemed to me to be mis- not expect any immediate changes in information services at Euronext, the conceived because they focus on just January,” he says. benefi ciaries of disaggregation will one aspect—data content—and do not While the German exchange depend on who has the resources to address the other key issue of what data will comply with the disaggregation invest in unpicking which data users access and usage rights are required by requirement by making the products use what across their organizations. MiFID to be made available for any available on its CEF Core Feed, Graf “Clients who are able to do the work given data content package,” says Reg also says there is “signifi cant demand in terms of analysis of their individual Pritchard, managing director of data for our existing bundled product, for users and what data they’re using, and contract and usage policy consultancy instance our Level 2 products. [Clients] having a greater understanding at a Rights Management Associates. “No require these products to remain. They granular level of what data items their doubt the data content disaggregation require bundled products.” clients require… will be able to take requirements will result in additional Graf acknowledges that Deutsche advantage of that. But if they’re not able administrative cost and complexity Börse’s retail clients will reap some to, or don’t have the resources to do for the industry as a whole. Under benefi ts from the changes, bus says this that, then possibly not.” any cost-based system for controlling is largely a result of the exchange opting “If you are an organization that total market data income, this would to “signifi cantly lower data fees for retail specifi cally deals in [one specifi c] asset mean overall market data income clients.” For example, Deutsche Börse class, then disaggregation may be some- could rise. I would be surprised to see will cut the cost of its Xtra Core Level thing that you can take advantage of,” it fall,” he adds. 1 retail package from €15 to €4.90 from says John Mason, head of regulatory Some are less conservative in their Jan. 1, 2018, and will expand the scope and market structure strategic response comments, with a managing director at of the product to include the Xetra US and propositions at Thomson Reuters, one data vendor calling the EC’s review Stars and Xetra European Stars prod- adding that clients can already consume of data costs a “witch hunt… [which] ucts, while also cutting the cost of Xetra data by asset class from the vendor. “It’s ultimately undermines the objective of Core Level 2 by 10 cents from €20 to not something that really from our restoring market transparency. Banks €19.90 for retail investors. A Deutsche perspective [technically] aff ects us. We would rather see transparency in data Börse spokesperson says this is because don’t have to make any system changes costs to apply pressure to reduce them.” retail clients typically don’t require the specifi c to disaggregation…. But there Like other exchanges, Hodgson says Level 2 product, which provides in- are signifi cant changes happening to Hartmut Graf Euronext’s experience is that disaggre- depth order book data. feeds in general as result of MiFID for Deutsche Börse gation is something that data consumers

16 August 2017 waterstechnology.com Regulation

“would like to put on hold for now and says. “People just want to make sure But for some users, this is exactly think about later.” Once MiFID II takes that their users are getting the data that why they use vendors, rather than eff ect in January, “they’re going to have they need. As the year progresses, you’ll absorbing the burden of direct rela- so much on their plates as it is—mem- see more clients working on this to tionships and connectivity with bers, non-members and vendors alike maximize savings.” exchanges themselves. “We subscribe have overwhelmingly said to us, ‘Keep to Thomson Reuters or Bloomberg to your existing packages so that we and Vendor Concerns vs. Vendor’s aggregate our data for us. We would our clients can continue to report the Concerns never take price or security data sepa- existing services, and we don’t necessar- Between the warring factions of rately from the exchanges. It might be ily have to do everything from day one,’ exchanges and end users lie the data cheaper to do it that way, but then the … [and] on Jan. 3, they can just carry on David Howson vendors, who will play a critical role bank has to build as many interfaces exactly as they are at the moment,” he Bats Europe for many by delivering these regulated as there are exchanges in the world. says. “The overwhelming message now data packages, even though they are We don’t have the capacity for that. is ‘Don’t change anything for day one.’” unregulated—or at least, not subject to Nobody does. It would be a waste of However, Hodgson notes that the same regulations. money, and nobody is going to pay for clients initially supported the disaggre- “If your data is delivered via a data it,” says the head of market and refer- gation rules. “Initially, the push from vendor, then the eff ort is on whatever ence data at a European bank, adding clients was for the disaggregation. We changes the vendor is making rather that if the legislators had “any experi- thought running two lots of packages than your subscription to us…. Vendors ence with building and maintaining would be confusing and expensive, and aren’t regulated in the same way that these solutions and these datafeeds it also adds extra complexity on our exchanges are under MiFID II. Clients they would not have written this.” end,” so Euronext initially considered have to push the vendors if they want to Since the majority of consumers only off ering disaggregated packages, see those disaggregated packages on the will receive most of their exchange he says. vendor product,” Hodgson says. data via data aggregators such as As clients began to have second Bats’ Howson agrees that most of Bloomberg and Thomson Reuters, thoughts about disaggregation’s more the burden to off er the new packages ultimately RTS 14 might not produce complex fee models, the exchange will fall to the unregulated data ven- much change. In fact, some say this decided to retain its existing commer- dors. “Data consumers will be reliant lack of change would be a welcome cial packages, alongside new off erings. on vendors being able to entitle and seg- relief for fi rms trying to navigate For example, its cash market will be ment the data and having the reporting MiFID II. “The biggest fear is that on split into equities and ETFs, warrants tools in place to allow them to provide Jan. 3, 2018, everything is going to and certifi cates, and fi xed income. the data to those consumers in the way change, and they’ll have to undertake And whereas previously pre- and that they are trying to access the data.” massive amount of investment, time post-trade data for derivatives was According to the industry observer, and eff ort to set up for something in the same package, Euronext will data vendors have raised concerns about they’re not particularly interested now off er separate pre- and post-trade how much work is potentially required in, when their systems are set up derivatives data. to accommodate disaggregation, and to handle the existing setup,” the While the rules create a burden suggests that some of the current push observer adds. for exchanges, they also create com- to retain the status quo may be coming However, Thomson Reuters’ plexities for market data managers, from vendors rather than end users. Mason says the rules will have “mini- Hodgson says. “We’re one of x number “A lot of data vendors have taken the mal impact” on the vendor, which will of exchanges/trading platforms across view that broadly they don’t want to continue to off er data in the packages Europe. If every exchange came out make this available to their custom- that its customers want. “Not much with multiple disaggregated packages, ers. The main message from them to changes, as far as we’re concerned. then it’s going to take some time to exchanges is to continue to deliver This is part of the MiFID approach in work through those across your user your existing packages in the same terms of increased choice—to allow base to work out what the benefi t is. way. If the exchange says ‘We’ve organizations to be able to select their The unintended consequence is that made the technical and commercial packages from exchanges,” he says. “If while there will be more granular data changes for data to be available in a you go to Costco, you have to buy 24 out there, there are questions around disaggregated fashion,’ but the data bottles of water, all shrink-wrapped, how you permission your users for that, vendor chooses not to implement whereas what MiFID is allowing you how you count and report those users, that, the data vendor is perfectly in to do is buy a single bottle of water if and ensure that you are complaint,” he the right,” the observer says. that’s what you want.” „

waterstechnology.com August 2017 17 Regulation

Firms Drag Heels on MiFID II Research Rulebook Rewrite

In January, MiFID II’s ban on broker- ow do you value broker The expansive MiFID II regula- subsidized free research will take effect, research? Or, more to the tion will take eff ect from Jan. 3, 2018, H point, how do you put a and one key aspect—the so-called leaving sell-side fi rms to deal with a price on it? This is a key question unbundling rules—is that banks and multitude of challenges—not least how sell-side fi rms are grappling with as brokers must charge asset managers to price research so as not to lose prized they jostle for a position on buy-side an explicit fee for research, rather than customers who might direct trading clients’ research lists. With just fi ve bundling the cost into the trading elsewhere, without appearing to be months to go before second itera- commissions they charged clients. tion of Europe’s Markets in Financial The aim of the new rules is to incentivizing clients to trade. Kirsten Hyde Instruments Directive (MiFID protect investors, increase transpar- examines the pricing challenges facing II), comes into force, banning the ency, and reduce confl icts of interest buy- and sell-side fi rms in the run-up to decades-long practice of banks by curbing the use of research as an MiFID II, and the potential fallout from the giving away research to trading cli- “inducement” by banks and brokers ents for free, many are still engaged in exchange for execution and fl ow. new unbundling rules. in negotiations about how—and how A big concern for regulators has much—to charge for their research been that managers are routing their and the access to analysts and corpo- business—and accompanying com- rate executives that comes with it. missions—to traders at fi rms that off er

18 August 2017 waterstechnology.com Regulation

side fi rms will have to take into the “In the past, banks have boasted full-service account additional costs of compliance and monitoring their consumption. research offerings across industries, although According to the McKinsey report, this resulted in some thin coverage in certain the combined eff ects of higher costs sectors. With asset managers scrutinizing their for research, to the extent managers research spend with each bank and coverage, pay for it themselves, plus operational burdens could reduce asset managers’ they likely won’t settle for paying for thin profi t in Europe by up to 20 percent. coverage anywhere. Therefore, to maintain As the cost of analysts’ work strong relationships and remain profitable, becomes transparent, buy-side fi rms banks may cut their poor performers and focus will inevitably become more selec- on their core competencies.” William Llamas, tive about what they pay for. The McKinsey report notes that con- Greenwich Associates versations with buy- and sell-side participants reveal that many expect them privileged access to analysts and vices, they risk losing key customers an immediate 10 percent drop in ideas, even if those fi rms don’t off er who might direct their trading busi- research revenues. Over three years, as the best execution for clients. ness elsewhere. But if they discount demand and supply achieve a better- Under the new rules, banks must too heavily, they could antagonise informed equilibrium, the consensus provide specifi c charges for their regulators if extremely low prices are is that there will be a 30 percent fall analysts’ time and work, while buy- deemed an incentive to trade. in research payments, with some fi rms side fi rms must set research budgets, According to a recent study from expecting a drop of 50 percent. determine how to reconcile the cost of consulting fi rm Quinlan & Associates, Investment fi rms spoken to by research to multiple clients, and decide “While discounted subscription pric- Inside Data Management confi rm that on a payment mechanism. ing might be a sensible way to attract they will be reducing the number of “One of the issues banks are a larger user base, we believe eff orts to research suppliers they use, although dealing with is identifying what ‘loss lead’ may result in several bro- they decline to say by how much due clients actually value,” says Roger kers’ P&Ls being underwater come to the ongoing nature of negotiations. Rudisuli, senior partner at consultancy Jan. 3, 2018, with costs of production Union Investment, one of Germany’s McKinsey & Co., and lead author of signifi cantly exceeding revenues. As largest fund managers, for instance, a recent report on how to reinvent a result, an entire research platform says it will “signifi cantly” reduce the equity research as a profi t-making could potentially be seen by regula- number of external research providers business. tors as an ‘inducement,’ contradicting it uses, which currently stands at more “Research provides many diff erent the very essence of MiFID II’s unbun- than 200. products and services and one of the dling regulations.” According to a survey of 562 key questions for sell-side fi rms is how The stakes involved in making professionals from 450 asset man- to value those elements, how to bundle it onto the list of clients’ preferred agement fi rms published in June by them or price them individually and research suppliers are high. Sell-side institutional research marketplace capture their full revenue potential— fi rms have already started to feel the RSRCHXchange, 77 percent of fi rms particularly the products and services pressure as asset managers—chal- will reduce the number of providers that are scarce, such as corporate and lenged to deliver alpha and gain an they take research from, with 45 per- analyst access. This is a real challenge,” edge over competitors—have sought cent saying they expect the number to Rudisuli says. “Some of the largest new forms of research and analyt- drop sharply. clients pay a lot for research, and one ics, while asset owners and investors With a predicted fall in payments of the most diffi cult aspects in all this have increasingly turned to passive for research, the repercussions for sell- is how to keep generating those rev- investments. side fi rms will be signifi cant, and will enues. On the other hand, fi rms also likely result in a reduction in analyst need to fi nd a model that works for Research Costs to Fall headcount. At the top nine invest- small or medium-sized clients.” With the ushering in of MiFID II, ment banks, cash equities research One of the dilemmas banks face is not only will the economic value of Roger Rudisuli headcount has fallen 12 percent to if they charge too much for their ser- research come under scrutiny; buy- McKinsey & Co. 3,900 since 2011, according to the

waterstechnology.com August 2017 19 Regulation

McKinsey report, compared to a drop able high-touch research services can of as much as 38 percent in cash equi- easily be in the seven fi gures for larger ties sales and trading staff . clients.” “Over the next three to fi ve years, A manager at a large UK-based as fi rms scale back their broad coverage asset management company, who to a few areas of true expertise, they asked not to be named, says the fi rm will need to ‘right-size’ their research has been contacted by most of its business,” Rudisuli says. research providers. “There has been a real dispersion in prices. We have been Unbundled Bundles quoted anything from around £30,000 The immediate future, though, holds a year to more than £200,000, and the continued negotiations between costs quoted do not necessarily refl ect banks and asset managers as they race Jeremy Davies, RSRCHXchange quality. The best research providers to the January fi nish line, with some aren’t necessarily charging the most, fundamental details around research which will likely extend right up and the not-so-good ones are not nec- fees starting to emerge. to the MiFID II deadline of Jan. 3, essarily proposing the lowest fees. It’s a Packages on off er range from 2018,” he says. competitive market, and we can only subscriptions for published research In terms of pricing specifi cs, see things coalescing toward the end to bundled pricing that combines consultants and investment fi rms of the year.” published reports and regular access involved in negotiations tell Inside Beyond year-end, Rudisuli to analysts, and combinations of bun- Data Management that off ers vary sig- predicts that banks will introduce dles for larger clients. nifi cantly, with the largest banks with auctions for time with top analysts “Most—but not all—banks are top-rated analysts initially proposing and corporate executives. “Around off ering subscriptions for basic access several hundred thousand pounds for a big announcement in an industry, to written research to satisfy regula- an annual subscription to their research everybody wants to talk to the analyst tory pressure on asset managers to platforms. Smaller European banks in that fi rst half hour, or wants to meet establish a priori contracts with all and those concentrating on fi xed the CFO or CEO of an important research providers. In many cases, income research rather than equities company, and there are only so many higher value services such as analyst are setting lower prices, since fi xed seats at the table. To capture the full access, events and fi nancial models income is not so research-dependent. value, an auction seems the right are off ered on a pay-as-you-go basis, For example, Crédit Agricole is approach, and over the medium to which would be paid ex post con- pricing toward the lower end of the long term this may evolve as a way to sumption,” says Sanford Bragg, a range with a two-tiered model for its price this. In the short term, however, principal at consultancy Integrity fi xed income research, according to there are operational challenges, so I Research Associates. “Underlying a price document presented to inves- don’t think this would be prevalent most of the quoted fees are tiered tors. A basic macro research package, immediately,” he says. service models based on client which gives users access to written profi tability analysis, similar to the analyst reports, will cost €10,000 per Budget Challenges approach investment banks have year, while its €120,000 premium On the other side of the negotiation taken with bundled commission credit research service will provide table, asset managers have to assess who payments.” analyst and corporate access. However, they want to buy research from under In some cases, subscription fees the bank will limit the premium off er the new regime, and how much they are fi xed by product or coverage, to 20 clients because its client base is want to spend. The challenge here is while some banks tier subscription “too large to guarantee senior analyst/ that many are waiting for clearer prices access by client assets or user num- strategist access to everyone,” the from their research providers before bers, Bragg notes. Full-service fees, document states. they can fi nalize any agreements. In which include high-touch research “Quoted fees for research vary RSRCHXchange’s survey, 39 percent services such as analyst access, are widely. At the low end you have fees of of respondents said their biggest chal- mostly being quoted on a bespoke €10,000 per year for Crédit Agricole’s lenge is setting a budget for research. basis and are based on interactions written macro research or £30,000 “A lot of fi rms are looking to data collected by the investment per year for Barclays’ read-only access fi nalize their budgets by September banks, he adds. “The quotes repre- to European equity research,” Bragg or October, but for those passing the sent opening rounds in negotiations says. “But quotes for the most valu- costs on to clients and needing to get

20 August 2017 waterstechnology.com Regulation

that budget approved, time is running from clients or consultants, or business as leaders in providing both global out. Where banks are not giving fi rm pressure to do it ourselves.” execution services and high-quality, prices, this is causing a lot of diffi culty According to RSRCHXchange’s broad-based research coverage. for managers,” says RSRCHXchange survey, attitudes toward paying for “The majority of banks will have to co-founder Jeremy Davies. research have changed over the last rationalize their research and execu- Asset managers also have to decide nine months. In Q4 2016, half of tion capabilities by focusing on their on how to pay for the research. The respondents said they didn’t know ‘home-fi eld advantage’ in local sectors options are to pay out of their own how they would pay for research. and regional markets. Demand from P&L, or separately from research However, this fell to just over one- local and global clients will likely payment accounts (RPA) where they third in Q2 2017, showing that support one to three such banks per set and disclose to clients a research Sanford Bragg decisions are being made. region,” the report predicts. “Trading budget on a periodic basis, track the Integrity “In this group of respondents, the and research eff orts will be limited Research cost of any research received, pay for Associates decision seems to be skewed toward to their specialties, calling for smaller that research out of clients’ RPAs, and P&L, although this model mainly teams, but providing asset managers fairly apportion the costs of research applies to the funds in the UK, Benelux with the same access to scarce analyst used in relation to multiple client and Germany. The direct charge to and company meetings, in addition to accounts. the client—the Swedish Model—was conventional published research.” Funding RPAs up to the amount naturally very popular in Scandinavia, William Llamas, associate director budgeted can be carried out in two but also in Spain,” Davies says. “The at Greenwich Associates, agrees that ways: through commission-sharing CSA-like model of collecting research banks will have to focus on their best agreements (CSAs), known as the payments alongside transactions was research assets. “In the past, banks have Transactional Method, or through only really popular in the UK, where boasted full-service research off erings direct withdrawals from invest- CSA penetration has historically across industries, although this resulted ment vehicles they manage—the been quite high, unlike continental in some thin coverage in certain sec- Accounting Method, also referred to Europe.” tors. With asset managers scrutinizing as the Swedish Model. Davies expresses surprise, how- their research spend with each bank Some high-profi le asset managers, ever, at how late buy-side fi rms are and coverage, they likely won’t settle including Jupiter Asset Management, leaving their preparations. “The pro- for paying for thin coverage anywhere. Vanguard, JP Morgan Asset cess that they need to go through is far Therefore, to maintain strong relation- Management and Hermes Investment from linear. They need to go back to ships and remain profi table, banks may Management have announced plans their investors with both the budget cut their poor performers and focus on to absorb the cost of research rather and how they are going to pay, and their core competencies.” than pass it on to clients. Jupiter, for their investors need to approve that. In addition, independent research instance, says this will add £5 million The process might not necessarily go fi rms off ering little or no execution are in costs from 2018 onwards. Others, through quickly because, perhaps, likely to see their market share rise in such as Henderson Global Investors, the budget is a big number. I don’t the new regulatory landscape—albeit have bucked the trend by saying they know anyone who has fi nalised the from a low base, market participants will pass costs on. budget yet, and we’ve got just fi ve say. Typically, they run lean opera- During Henderson’s fi rst-quarter months to go.” tions, meaning they can off er attractive results call, chief executive Andrew cost benefi ts as buy-side fi rms carry Formica said it was not necessary to Winners and Losers out their research valuations. Perhaps make a hard payment for research All market participants agree that more importantly, they tend to have a costs. “There have been a number of big changes are coming. Quinlan & smaller client base, which creates value notable competitors come out and say Associates believes banks now have for their ideas through exclusivity. that they will pay hard. That’s a deci- a “brave call” to make about their Ultimately, the winners in the new sion driven by them at the board level business models, and McKinsey’s con- landscape will be the buy- and sell-side and a business level, not at a regulatory sultants say “banks will need to make fi rms that can adapt and specialize, level,” Formica said. “We certainly hard choices and play to their strengths. while the losers cannot, Llamas says. don’t see that as necessary, and we also Not only will the top ranks be thinned “The shining light that is MiFID II don’t see the vast majority of our peers out, there will be shakeouts in regional will likely uncover some of the market doing it, so even though there have markets” over the next fi ve years. ineffi ciencies it set out to fi x, although been some relatively big headlines on McKinsey’s report adds that just with it bring unintended consequences that, we don’t see any pressure either a few global banks will likely emerge to the fi nancial services industry.” „

waterstechnology.com August 2017 21 Regulation

ASIA’S MIFID II COMPLIANCE COUNTDOWN

The countdown to Jan. 3, 2018, when ith barely fi ve months to take a more global approach and hence MiFID II will take effect, is starting to sound go until MiFID II becomes apply their MiFID II implementa- Wlaw, it might seem surpris- tion projects across their operations like the ominous ticking of a time bomb. ing that some fi nancial institutions in globally, while others with less of a Many details of the regulation have been Asia are taking a cautious approach focus in Europe or in Asia may veer available for some time, yet as the clock toward implementing new work- toward “quarantining” their European ticks down, questions still remain over fl ows or processes to comply with the operations. interpretation. Wei-Shen Wong fi nds out European regulation. For example, one major fi nancial One of the challenges MiFID services fi rm based in Singapore that whether Asian fi rms have defused the II brings to the table is the amount has a branch in London is trying to danger or are bracing for an explosion. of additional data that needs to be minimize the impact by taking this recorded and reported to regulators. quarantining approach toward its Particularly for fi rms not directly reporting activities because the bank is impacted by MiFID II, where the exact not a European Union entity, accord- impact may be unclear, this might ing to its head of compliance, who prove to be an even bigger task. requested anonymity. Many organizations with a large “We are trying to approach it international presence will most likely on the basis that we’re building

22 August 2017 waterstechnology.com Regulation

regulation’s impact on areas such as best execution, research unbundling, “We’ve taken a multi-pronged approach. We transaction reporting, and post- trade brought in vendors to give us their overviews transparency, Sentance says. and to tell us what their best solutions are, Gary Stone, market structure and law firms for their interpretation of the and regulatory policy strategist at regulation, and European banks to talk about Bloomberg, sees more and more global fi rms looking to consolidate what they expect, how they see it, and how their compliance activities and they are going about it because we wanted to solutions. get a 360-degree view of the directive and the “While pre- and post-trade different participants’ view of MiFID II.” price transparency reporting and T+1 transaction reporting to your Frederick Shen, OCBC local regulator are diff erent in terms of why they have been imposed, the data elements that must be reported, and the frequency and timeliness of something that will meet our needs each organization. “Obviously, it is the reports, they are fundamentally to report on behalf of our London great to leverage global resources/ ‘trade reporting.’ That is neither branch and UK entities. We are not systems/data, but sometimes a local something new nor restricted to the looking to scale at the moment, as we approach is easier to implement EU under MiFID II and MiFIR. are not expecting to have to report independently short-term—but at Many jurisdictions have similar transactions that are not at all con- the risk of greater longer-term costs requirements. So we are seeing nected with Europe—other than, of and issues,” he says. fi rms looking to implement central course, the information that we have One issue with taking a more stores of the reportable events—this to provide to European exchanges or tactical local solution, he says, is in itself is quite a challenge for large brokers or MTFs,” he says. that many of the regulations fi rms complex organizations—and over- From a non-European perspec- are currently dealing with—such lay that with comprehensive rules tive, there will defi nitely be some as BCBS 239, FRTB, IFRS 9, and engines to extract and enrich the fragmentation in how the fi rm others—overlap in their require- reportable dataset and then issue the approaches data, he adds. The bank ments around data and data report via the appropriate medium,” will do what is required to comply management. Stone says. within Europe, as well as to meet the Sentance says it’s always harder needs of European clients and the to take the more strategic approach Not Too Late platforms it deals with in Europe. But because fi rms must cater to the Even though it is less than fi ve beyond that, the bank is not looking superset of requirements across all months until MiFID II takes eff ect, to implement its response to MiFID II regions, which are always evolv- it’s not too late to begin getting as part of any standardized approach ing. Thus, from a data management ready, but the extent to which fi rms across its business elsewhere, he says. perspective, it’s key to have a fl exible in Asia should prepare will vary Data management software data model that will easily be able to depending on their exposure and vendor Xenomorph has seen accommodate all existing and future dealings with Europe, and on their both models work—both a global asset classes. clients’ requirements. approach and a more localized Given its importance for both Asia-headquartered fi rms with one—depending on the needs of buy-side and sell-side institutions, branches or subsidiaries in the EU each specifi c organization. Although MiFID II has garnered the most providing investment services will a tactical solution specifi c to one attention in terms of data manage- be directly subject to MiFID II rules, regulation might be expedient in the ment, and since many Asian fi rms Bloomberg’s Stone says. “But the short term, it might end up costing are exposed to MiFID II compli- MiFID II obligations for an Asia- more over time. ance issues through their EU-based based institution are often indirect Xenomorph chief executive operations and interests, it’s impor- by virtue of them dealing with Brian Sentance says this depends on tant for them to understand the European clients on a cross-border

waterstechnology.com August 2017 23 Regulation

basis from their Asia-based entity. Asia-based institutions’ EU custom- ers/investors may have certain needs or requests in order for them to be compliant with MiFID II,” he says. Though not too late, Stone says fi rms shouldn’t wait any longer to implement their plans for compli- ance. As a start, those EU customers/ investors will most likely ask for the Asia-based institution to obtain a Legal Entity Identifi er (LEI), he says, which are a requirement for any fi rm doing business in Europe. According to Stone, Asia-based regulators and fi nancial institutions were some of the fi rst non-EU groups that understood that MiFID II could impact their business. “Some of the fi rst inbound calls to EU counterpar- ties were from Asia asking what, if anything, they needed to do to keep their business,” he adds. Sentance concurs that it isn’t too late to start. “It is never too late to start. Certainly the regulators are not always ‘on time’ themselves, and are often looking for meaningful eff orts to comply, rather than full compli- ance from day one,” he says. of products and services including Staff from various departments But the fact that MiFID II has loans and advances, trade fi nance, within OCBC are currently work- already been pushed back by a year deposits, remittance services, for- ing on MiFID II requirements. Shen might make regulators less lenient eign exchange and money market says the bank has staff from legal, than usual. So it would be wise for dealings. regulatory compliance, treasury fi rms struggling to meet the imple- Frederick Shen, head of global operations, global treasury, sales mentation deadline to prioritize treasury business management at and dealers, overseas locations and areas where non-compliance would OCBC, says the fi rm will take a subsidiary units all meeting and be more evident, such as transaction pragmatic approach when dealing working on the gaps. reporting. “Having systems in place with reporting and data, as it does not Meanwhile, the Singaporean to aggregate, normalize and validate currently have a holistic solution that bank with operations in London data required for transaction report- is able to cover all its needs. will have to develop the infrastruc- ing is something you’d probably want “We’ve taken a multi-pronged ture required to meet reporting and from day one,” Sentance adds. approach. We brought in vendors to best execution requirements, and to give us their overviews and to tell track its systematic internalizer (SI) Different Approaches us what their best solutions are, and calculations. For OCBC Bank, the longest estab- law fi rms for their interpretation of The compliance head says most lished bank in Singapore, whose key the regulation, and European banks of the infrastructure development markets are focused in Singapore, to talk about what they expect, how work for reporting and recordkeep- Malaysia, Indonesia and Greater they see it, and how they are going ing is being done in Singapore, with China, the second review of MiFID about it, because we wanted to get some in Hong Kong and London. II will have both a direct and indirect a 360-degree view of the directive “It really depends on the particular impact due to the fi rm’s full-service and the diff erent participants’ view of platform we use in London and London branch, which off ers a range MiFID II,” he says. where it is maintained. Our report-

24 August 2017 waterstechnology.com Regulation

ing will generally have to come out direct payment out of the fi rm’s own lenge is to get the right people on the of our booking systems, whereas resources, and payment through a client side to have a discussion. We’re some of the infrastructure required separate research payment account fi nding a high degree of ignorance, for record keeping is maintained funded by a specifi c, separate charge to actually. We’re not a big research pro- locally,” he says. the fi rm’s clients, which is agreed and vider within the European context, but His bigger concern around disclosed upfront. they’ve been reaching out and asking us MiFID II is not so much compliance “The restriction applies to the how we think it should be done. That’s itself, but the potential disruption to EU fi rm receiving research but the a bit of a surprise.” business. “One of the big concerns is indirect impact on Asian fi rms pro- Some Asian fi rms may even around implementation day. There viding research to EU clients under reconsider whether they want to sell may be participants coming up at the Gary Stone commission-sharing arrangement or some of these products into Europe, last minute asking a counterparty, Bloomberg sharing research within a global group,” either directly or indirectly, simply ‘How can you help me with this?’ Landless said at the recent MiFID II: because of the number of uncertainties We don’t know yet. We might have What You Need to Know event hosted and challenges involved in MiFID II last-minute things coming out from by WatersTechnology in Singapore. compliance. multilateral trading facilities (MTFs) For OCBC, research sits within Xenomorph’s Sentance says com- or counterparties wanting things its global treasury remit, and most of plex cross-jurisdictional legal issues from us that we can’t deliver to the work done is consumed internally, that are diffi cult to resolve could them to meet their expectations,” he though it does provide research to delay a fi rm’s response to regulatory explains. other market participants, including issues. “For example, if the level of retail investors, corporate clients, and transparency required for MiFID II Research: Spanner in the Works other Singaporean entities that might transaction reporting confl icts with One area where European coun- be subject to MiFID II. customer privacy laws in certain Asian terparties may have last-minute However, the bank has not yet jurisdictions…. While those aren’t nec- concerns that disrupt business is the decided how it will approach research essarily technical challenges, they could provision of broker research, which in Asia under MiFID II. “We also put the brakes on a data management has stolen the limelight from many provide macro research. It is largely an project as fi rms decide how to resolve other equally important aspects of Asian and Asean view, as opposed to potential confl icts,” he says. MiFID II because unbundling trad- research on Europe or on the US and While there are diff erences in the ing commissions from investment their entities. It’s focused on what we degree to which MiFID II rules impact research payments is a fundamental do best here in Singapore and in the EU entities and non-EU entities, all change from how research has been Asean region. We have yet to come fi rms face similar challenges. At the end traditionally paid for (see story, pages to a conclusion how we are going to of the day, the focus and preparedness 18–21). approach research to abide by MIFID will come down to what regulations Though the research aspects II,” Shen says. and local regulators are pushing hardest of MiFID II are well established, The compliance head at the for, Sentance says. “Certainly some- Bloomberg’s Stone says, “It’s unclear unnamed Singapore fi rm says his thing that is shared between Europe, what EU participants will ask of their fi rm is at an early stage in terms of Asia and indeed the US is trying to non-EU relationships. There still isn’t discussions with clients as to how fi xed work out which seemingly local regu- consensus on many issues.” income research in particular would lations have global implications for the For example, buy-side fi rms will be consumed by European clients in a running of a fi nancial institution with need to set budgets for how much compliant manner. multiple worldwide offi ces and subsidi- they can pay for research, while For macro research, he is optimistic aries,” he says. sell-side fi rms will need to fi nalize that the bank will be able to continue Bloomberg’s Stone says Asian how they price their research. Buy- distributing research in the same way fi rms are not alone in this struggle, side fi rms will also need to produce it does now, and keep its “European adding that he expects a broad year- a methodology that allows them to experience” separate. “I guess we are end scramble for compliance. “The determine—and demonstrate—that looking at it from a perspective of what detailed nature of questions we’re the research adds suffi cient value to we need to do with our European cli- receiving, the requests for product justify its price. ents as opposed to saying we’re going demonstrations and contracts, shows Paul Landless, partner at Cliff ord to come up with a pricing model and that Asian fi rms are not alone. Many Brian Chance, says there are two permis- Sentance we’re going to force it on our clients global fi rms have yet to implement sible payment structures for research: Xenomorph out in Asia,” he says. “The biggest chal- their solutions,” he adds. „

waterstechnology.com August 2017 25 Regulation

A COSTLY RACE TO MiFID II Reporting Compliance

Trade reporting and publication s fi nancial fi rms continue the Authority declines to comment on the mechanisms are a key part of the new arduous marathon toward progress of applications by potential AMiFID II compliance, a key ARMs to connect with the market data MiFID II legislation. So why are alarming decision is which vendor (or vendors) processor (MDP), as ARMs are now numbers of fi rms yet to choose their to enlist to meet new trade reporting required to do, and so far, no providers providers? With a last-gasp sprint on the requirements. As the January 2018 have announced offi cial authorization. cards in a crowded fi eld of participants, deadline creeps ever closer, decision However, under the fi rst iteration makers may fi nd that when selecting of MiFID, only half a dozen fi rms Jamie Hyman investigates whether some an Approved Reporting Mechanism were approved. If we assume similar have left it too late. (ARM) and Approved Publication numbers under MiFID II, market Arrangement (APA), their criteria are participants could fi nd themselves in a not only focused on services and pric- very crowded space when fi rms rush to ing, but also on timing. begin testing their reports closer to the Thousands of fi rms are attempting MiFID II deadline. to comply with new reporting rules, When asked to name the big- and most need an ARM and APA to gest challenges they face under the make it happen. A spokesperson for MiFID II regime, both user fi rms UK regulator the Financial Conduct and ARMs list a variety of issues,

26 August 2017 waterstechnology.com Regulation

Volker Lainer, vice president of product management at GoldenSource, an enterprise data management plat- form provider that partners with APAs, “We’re quite surprised at just how late says he believes ARMs and APAs the industry on the whole is leaving it. off ering extended services may have Depending on who you speak to, up to… added a layer of complexity. three quarters of the market hasn’t actually “Many have not made that fi nal chosen a service provider yet. Given how decision, and I think it evolved because it was not so easy then to really be clear late in the game we are, that is certainly about what those extended services can concerning.” Collin Coleman, NEX really provide, whether it would fulfi ll Regulatory Reporting what fi rms really need, and integra- tion,” Lainer says, adding that he thinks a number of fi rms will still be trying to fi nd a Plan B in the fourth quarter of this year for some obligations they haven’t yet covered. Nick Moss, transaction reporting but nearly all agree that in regard to got many hundreds of contracts out, product manager at data, post-trade committing to a transaction report- and people have not yet signed them, matching and regulatory reporting ing strategy, the industry is behind is indicative of that.” provider Trax, a subsidiary of fi xed schedule. Alejandro Perez, global head of income broker platform MarketAxess, “We’re quite surprised at just post-trade solutions at Bloomberg, says most large fi rms have made their how late the industry on the whole foresees an end-of-year rush. “We ARM and APA selections, but some is leaving it,” says Collin Coleman, do believe a good number of folks smaller fi rms do not have the resources chief executive of NEX Regulatory are going to wake up at the last and capacity to do the advance analysis Reporting, a division of interdealer minute. We’re even expecting that that larger fi rms have completed. “If broker NEX Group (formerly Icap). in December over Christmas break, there’s a bottleneck later in the year, “Depending on who you speak to, [fi rms] will come to us and say ‘I didn’t that’s where it’s likely to come from,” up to… three quarters of the market realize this would impact me. But now Moss says. hasn’t actually chosen a service pro- I realize it will, I need help’,” he says. NEX’s Coleman says fi rms’ expe- vider yet. Given how late in the game Explaining why these decisions rience will determine how long they we are, that is certainly concerning.” have been left to the last minute, indus- need to allot to prepare, and sell-side Coleman says he believes there try experts cite everything from hope fi rms with more experience can prob- will be fi rms that are so far behind that the MiFID II deadline would be ably leave things later than buy-side they will not be able to legally trade extended again to human nature. fi rms who are new to dealing with when MiFID II becomes law on Jan. “I think from the perspective of reporting requirements. However, 3. “I think at some point that might reporting fi rms who are new to this, buy-side fi rms leaving their deci- have been a controversial statement,” one of my concerns is that there may be sions later is “a worry for us, because he says. “But I think the basic laws of an idea that somehow they just choose we don’t want to compromise on the capacity are coming into eff ect now.” a provider and then they’re done,” service levels we off er,” he says, adding Mark Croxon, head of regulatory Coleman says. “Actually, that’s the eas- that NEX is juggling updates for exist- and market structure strategy for iest part of the process. The hard part ing clients and on-boarding new clients EMEA at Bloomberg, says he thinks of the process is understanding what while ensuring they don’t jeopardize the pace will pick up drastically in you need to report in the fi rst place, quality. September. “The fact that clients are and how. This is followed immediately “We want [new clients] to be suc- coming to us still with very detailed by sourcing that data and building the cessful with this, but leaving it late technical questions is indicative, systems and controls you need to make really massively increases the risk that anecdotally, that they have not yet sure that you’re extracting it correctly, they won’t be,” Coleman says. “I’d say fully made their decision about how that it’s complete, that it’s correct and Mark Beeston whether you have experience or not, Illuminate they’re going to solve the problems,” that you can verify it on an ongoing Financial you better shake a leg. If you don’t Croxon says. “And the fact that we’ve operational day-to-day basis.” Management have experience, then you are really

waterstechnology.com August 2017 27 Regulation

sailing close to the wind in terms of the solution, working toward a full soon, and I think that would happen actually having a realistic prospect of end-to-end test fl ow where they’re across the industry.” being ready and fully compliant for sending their events in at the top of In some cases, compliance may Jan. 3.” the hopper, and feeding it through not happen until post-deadline. and seeing the output in the down- Mark Beeston, founder of Illuminate Time Running Out stream applications around reporting, Financial Management, a venture That said, it’s not too late. Not yet, at record keeping, and so on and so capital fi rm that invests solely in capital least. “It is possible to turn these pro- forth,” says Bloomberg’s Croxon, who markets fi nancial technology providers, jects around very quickly if people are says the vendor’s strategy to expedite notes that while MiFID II is the “most focused on it, and at that point in the onboarding has been to focus on important regulatory driver right now,” curve, of course they are,” Coleman pre-integration. Colin Murphy the industry has a history of holding off says. “History does show that actually Trax’s strategy is to handle the legal NEX Optimisation on full compliance. the pace of noncompliance beyond aspect of signing on new clients in “Clearly, the ARM space has that trails off very quickly. If we do tandem with onboarding, while NEX become very competitive—there are a not see 100 percent readiness on Jan. is off ering some extra services around number of providers out there. But it 3, a fi rm doesn’t need to give up data preparedness. does look to me in terms of the mass and say ‘This is impossible.’ It will Bloomberg’s Perez agrees that adoption of solutions that there is a go- require absolute focus. But we’ve implementation and integration are live timing challenge coming down the lived through it once, and I think this top challenges. “We’re getting to a pipe,” Beeston says. “We’ve seen [the is going to be a similar kind of thing, point where it can become too late for same thing] in other cases where a reg- and it’s not as bad as all that.” anybody to implement in time, to have ulatory deadline is on the horizon but Testing time is a crucial factor in integration ready, and to have adequate the actual mass adoption of solutions to whether fi rms will comply by the dead- time to test,” he says. “We’re not at that the problem doesn’t actually start until line, and ARMs are employing a range limit, but we have hundreds of clients after that regulation has gone live.” of strategies to save time. in the pipeline reviewing contracts, Trax’s Moss says three months is a “What some clients are doing with therefore, if they start coming back and good estimate for end-to-end onboard- us at the moment is testing individual inquiring about procuring our integra- ing. “We’re typically advising fi rms to connections and individual units of tion services, we’ll be limited fairly have an onboarding process that gives

28 August 2017 waterstechnology.com Regulation

you the time and the confi dence to be “[Firms] can delegate the reporting, “The larger fi rms, including the able to integrate and test properly,” he but ultimately the ownership for its larger investment banks, who made says. “Once you’ve made your ARM accuracy, the fullness and completeness decisions early, were very much look- or APA decision, to build out to the of it still ultimately sits with [fi rms],” ing for experience and heritage, a various diff erent specifi cations and to says Illuminate’s Beeston. “I think proven track record within a particular perform all the various diff erent types there’s more to it than appointing a reporting line and they wouldn’t nec- of testing you need to do to make sure vendor. I get the impression that there essarily tie their ARM choice to their that you’re comfortable and confi dent are an awful lot of people out there who choice of APA. They wanted special- in your reporting on day one, that’s have not yet even decided who their ists within each line, and they wanted going to be around three months for vendor is, let alone worked out what a proven track record that you’re able the entire process.” Mark Croxon their internal control process is to sup- to cope with the requirements,” Moss The good news is that ARM appli- Bloomberg port that.” says. “Smaller fi rms are more inter- cants do not need to wait for approval As always, fi rms must deal with ested in choosing one solution across to begin testing. NEX, Bloomberg and data quality challenges, and accurate all their diff erent regulatory obliga- Trax all say they’re already testing, and data is fi rms’ greatest risk, Beeston says. tions, so ideally they want to have onboarding fi rms who will be ready to “We are very consistently hearing that the same company as their ARM and test soon. data quality, data governance, data their APA, which can also help them To become compliant by deadline, lineage is the single biggest challenge fulfi ll other regulatory obligations, fi rms and ARMs both face signifi cant that the buy-side fi rms that we talk to such as best execution reporting. Some challenges. First and foremost, fi rms are struggling with. The ‘garbage in; of the other key regulatory solutions must contend with requirements that garbage out’ approach to processing is were also factors in their decision are more voluminous and complex. as true in fi ntech land as it ever was 20 making, including off ering commod- Moss says MiFID II now requires years prior.” ity position reporting and instrument 65 data fi elds—compared to just 24 reference data reporting.” before—so not only is there more ARMs Race Colin Murphy, chief operating data to deal with, but more fi rms are ARMs also have problems to solve offi cer of NEX Optimisation, says aff ected. under MiFID II. They must contend most of the fi rms that NEX is working “Under MiFID I, quite a few asset with the same onboarding and com- with are fi rst taking into consideration managers qualifi ed for the portfolio plexity issues as trading and investment their own level of sophistication, what manager exemption, which, for those fi rms, while also being responsible for exactly they need from an ARM or fi rms who qualifi ed, meant that as long addressing data quality challenges, as APA, and of course, price—though he as the broker they were trading with well as the new issue of personal data predicts that may not be true for long was reporting, they didn’t need to,” he security. as the dwindling timeframe for com- says. “Under MiFID II, that exemp- “Included in the 65 fi elds of the pliance forces fi rms to pay a premium. tion no longer exists, meaning there transaction report is information that “I think [pricing] is going to are a lot more fi rms that need to report, relates to individuals, and obviously become less of a factor as you get closer and we need to be able to cope with that data is very sensitive,” Moss says. to year-end as people are driven more that both from a technical perspective “We need to make sure we are build- by the absolute necessity to be compli- and from an onboarding perspective.” ing a robust and secure solution that ant and to be able to continue trade Moss says fi rms are also dealing enables fi rms to provide that data to us from January onwards. So I think the with the increase in asset classes that with the confi dence that there’s going level of sensitivity to pricing is prob- must be reported. to be absolutely no risk of that infor- ably going to go down as we get closer “There’s a huge amount more ref- mation being mismanaged, or being to year-end,” he says. erence data that fi rms need to manage available to people who shouldn’t have This potential cost, combined internally. Reference data is one of access to it.” with the anticipated late fl urry of the big challenges under MiFID II— In addition to addressing specifi c activity and potentially crowded test- making sure you have all that reference challenges and regulatory obligations, ing opportunities, means that those data to be able to support the various fi rms are taking other factors into fi rms who are taking their time with diff erent reporting regimes,” he says. consideration when mulling over their their ARM and APA decisions will Once fi rms have a grasp on what ARM and APA choices, with some soon face an expensive and hurried they need to do, they have to tackle decisions depending on the size of the race to the fi nish line, where the prize how much to delegate, and how they Nick Moss fi rm itself, and what matters to a fi rm is simply the ability to continue oper- implement internal accuracy controls. Trax of that size. ating without interruption. „

waterstechnology.com August 2017 29 Delivery Technologies

Baking a Distributed Ledger Layer Cake in a Data Oven

A great deal of distributed ledgers’ any in the industry view that has mostly grown, at least so far, distributed ledger tech- through controlled chaos. potential lay in their shared data layer. Yet Mnologies (DLT)—be they Still, as ledgers have achieved a curious facet of ledgers’ rapid rise is that blockchain, smart contracts, or other heightened relevance and early real the conversation and investment in this append-only database varieties—as applications, data teams remain largely space has moved mostly apart from data belonging squarely in the realm of off to the side—and this, industry trading technology, rather than an issue experts say, could eventually prove management and data managers. Tim for data experts. The reasons why are problematic as the space matures and Bourgaize Murray explores the reasons natural: The processes they’re trying grows more complex. At a bare mini- why, and the possible opportunities within to disrupt, the ledgers’ earliest and mum, distributed ledger participants the world of market and reference data most ardent backers, and even their must be able to interface with a ledger management as blockchain and smart bitcoin origin are all are associated with successfully and securely, oversee their innovations in trading. Observers also activities and translate ledger events contracts gain wider adoption. point out that the traditional data man- to the range of relevant (and often agement bailiwicks—governance and function-aligned) systems running standardization, data ownership and in-house. Firms will also want domain control—are tough to impose upon a expertise in place as more asset classes fl uid ecosystem of intellectual property adopt distributed ledgers, potentially

30 August 2017 waterstechnology.com Delivery Technologies

can better explore DLT along with newly-arriving frontiers and possible “Know Your Customer compliance is a overlap with artifi cial intelligence (AI) very thorny challenge, and this is one area and analytics.” where managers can use the ledger to be One senior data governance head more strategic. Looking at the several KYC at a large US-based asset manager utilities currently out there, and firms filling shares that sentiment, confi rming his position outside the fi rm’s ledger fray in as many as 270 fields for counterparty so as to focus on other priorities. But, identification, as an industry we devote a lot of he says, this is a conscious choice—and effort and cost just to gain consensus on KYC one that is almost perfectly emblematic requirements. ” Matt Shaw, Synechron of data management precepts. “There are many dimensions of data alignment implications and industry maturation required in our data management disciplines to sup- creating opportunities for insight to be work is hosted in an innovation lab or port blockchain optimism. Legacy data gleaned through Big Data applications similar carve-out, away from fi rms’ infrastructures notwithstanding, we and other analytics on the back end. core production environments. need to demonstrate major advances And, of course, they’ll need to meet the This separation allows the bank in common data standards, guaranteed same principles and standards that many or buy-side fi rm to continue operat- transaction resiliency and common chief data offi cers (CDOs) are enacting ing while pursuing stealth-mode data identifi cation frameworks to reach throughout the enterprise. experimentation and developing for a distributed yet shared common In practical terms, much of this solutions; meanwhile, the lab itself ledger architecture,” he tells IDM. “I’ve design work happens within a ledger’s serves as a responsive center of excel- not been involved with blockchain shared data layer, which itself is no small lence—nimble and fl exible to new evaluation, and am unfamiliar with our ask. The more DLT touch-points there developments in the space. As Eric projects underway so far, but I would are fl oating around an investment bank Piscini, global blockchain leader at suggest any data angle in the discussion or asset manager’s periphery, the more Deloitte tells IDM, many senior data would need to touch on those neces- immediate the need becomes for CDOs governance leaders and CDOs have sary advancements as prerequisites to and data teams to create structure and been mostly content with that arrange- establish a base framework that is open, wield infl uence around these activities. ment. “The CDOs we talk to are operable and scalable for the industry usually so busy with other challenges, using any blockchain platform.” The Old Recipe they just don’t see blockchain as being In 2017, the potential applications for on the front burner,” he explains. “The The Right Batter: Interoperability distributed ledgers run the gamut and exceptions are those in the middle of Most sources see the rubber meet- are well-rehearsed: For now, smart a larger settlement or reconciliation ing the road a few years from now, contracts for syndicated lending, trade transformation of their own, who are when ledgers become suffi ciently fi nance, collateralized debt instru- considering leapfrogging into it.” customary yet technically divergent ments, catastrophe bonds and some Others are certainly listening as to the point where they must be able smaller IPOs; for later, post-trade well. Matt Shaw, head of the enter- to link together. Last fall, Ethereum utilities, central clearing and even prise data practice at Synechron, co-founder Vitalik Buterin described exchanges. Many of these initiatives suggests that Big Data projects prized this moment in a paper, writing, “Use are still managed by consortiums or by CDOs—data lakes and warehouses, cases involving chain interoperability partnerships, usually running on one typically backed by on-demand scaling are among the few that may take the of four major ledgers—Ethereum, via cloud—and DLT will eventually longest to come to fruition, simply R3’s Corda, JPMorgan’s Quorum, converge. “Today, that convergence is because the set of dependencies is so and DAH’s Hyperledger. This, as one more luck than judgment,” he off ers. large. Such a use case requires (i) some source says, has been the standard oper- “Broadly, there is still a need for fi rmer chain A that is mature enough to build Clarke ating model: hedging and mutualized understanding of the data layer archi- Thompson off of, (ii) some chain B that is mature risk externally, while internally, most tecture. But once they have that, they R3 enough to build off of, and (iii) some

waterstechnology.com August 2017 31 Delivery Technologies

bigger ledger dreams, this new problem requires a trip back to a familiar well. “Collectively, the industry is looking at data standards now, and con- sidering which message formats will be adopted for data transfer between DLT solutions,” explains Clarke Thompson, solution architect at R3. “Bodies including Swift and ISDA (the International Swaps and Derivatives Association) have recognized the need for new standard data hierarchies and taxonomies, and in addition to emerging understanding of a need for common standards—both within a single DLT platform and across multi- ple ledgers—there is an opportunity to use multi-party data cleansing activities to solve for data quality problems in the reference data space and also generate new sources of reference data.”

Baking a Better Cake Greater focus on ledgers’ shared data layer may present signifi cant chal- lenges of engineering. But focusing on interoperability also off ers signifi cant upside from a ledger development and assessment standpoint, as well as oppor- tunities for external providers to fi ll in application or need that cannot be ledgers must be able to communicate. informational gaps at greater scale. served by implementing it on a single Something’s got to give. For one thing, the sociology that blockchain.” Little surprise, then, that interoper- governs the DLT space has typically We may already be seeing a pre- ability is seen as the next “big solve.” favored tactical implementations and view of this in action. Sources see Major sell-side fi rms—Barclays and been asset class-aligned, and some capital markets ledgers reaching this JPMorgan, among others—have suggest this has led to consortiums’ kind of impasse after, as one put it, publicly and independently jumped at fragmentation in the past couple of the stubborn “stalemate scenario” what amounts to a new fertile ground years. A greater focus on data usage among the main DLT developers that for intermediation. What’s also inter- could provide new vectors of inquiry has built up over 2017. In practice, it’s esting, multiple sources agree, is that among like-minded groups. “Firms are something of a game theory problem. chain interoperability reveals a real- now evaluating the balance between On one hand, the ledgers function ity about DLT that has been there all privacy, anonymity, commercializa- best when they are self-contained along: For all of the innate benefi ts tion opportunities and the benefi ts and light on their feet. Likewise, ledgers can bring—surety and speed of open-source distribution, and cer- the short history of investment for of settlement, ledger availability and tain participants will have diff erent capital markets DLT has incentivized integrity—improved data quality isn’t agendas and diff erent ends,” says R3’s a kind of parallelism of ledger types, one of them. Instead, it has to be built. Thompson. “Some projects have con- rather than consolidation. On the This fact is less obvious when a chain sidered relevant data standards, and we other hand, underlying dependen- is developed in isolation; with a stan- have advocated their use wherever pos- cies among fi nancial instruments and dalone private ledger, one governing sible. In one such project, participants markets, and the non-linear nature of a particular collateralized loan obliga- try to optimize data quality by allow- investment operations (particularly tion (CLO) syndicate, for instance, it is ing multiple institutions to attest to the post-trade) essentially guarantee that easier to manage. But for those with far validity of data schema.”

32 August 2017 waterstechnology.com Delivery Technologies

Flexibility in the data layer also Ready to Serve? “My impression is we think we allows data teams to confi gure ledg- The next wave of ledger innovation have a solution with blockchain ers more eff ectively over time, says will ask more fundamental questions capability and a public ledger, and we Deloitte’s Piscini. These “Lego blocks” than the fi rst—which, understandably, are currently exploring where such a include incorporating new wallets or sought to successfully persuade capital solution could solve problems, but it digital signatures, and for that matter markets to innovate using a green- does not appear that an ‘integrated’ diff erent types of cross-ledger linking fi eld technology. Instead, the stakes approach with data management mechanisms like notaries, relays and will be raised, to fundamentally test leadership is occurring yet,” says the hash-locking. A third potential area DLT architecture, and indeed chal- US asset manager’s data governance for improvement is deeper integration lenge the notion that a ledger can be executive. “This could be simply of the compliance layer of the ledger, Eric Piscini both the single (and often open) source because we’re experimenting with as well as observables (actions on the Deloitte of the truth for transactions—the siloed use cases to determine if the ledger) and development of cryptogra- “incontrovertible representation of a blockchain is viable, and what benefi t phy that anticipates more sophisticated trade fact,” as R3’s Thompson puts such a data structure could yield. But privacy protections for the future. These it—while simultaneously supporting it does run the risk of having to deal benefi ts have often been heralded, Shaw the bells and whistles and controls that with data alignment and integration argues, but often simply as a matter of banks and buy-side giants would like later—and that’s typically not a good intrinsic design. These areas align to hang on it. practice. Better practice would be to well with CDO priorities he says, It’s a prospect that will surely make have more unifi ed approach with data and going forward, a data-prioritized some blockchain purists wince, but a versus platform and function at the approach will enable greater use of necessary one if the market for DLT is heart, likely starting with a use case APIs to pull in new third-party data to fl ourish in a regulated environment. that demonstrates ledger value.” provisions, as well. One particular puzzle will, in eff ect, Interestingly, Ethereum’s Buterin “Know Your Customer (KYC) be a Pandora’s Box problem. Deloitte’s rides a very diff erent perspective to compliance is a very thorny challenge, Piscini believes fi rms should be prepar- the same conclusion about deliberate and this is one area where managers ing for “the fabric of any transaction” change. “Building interoperable appli- can use the ledger to be more strategic. to be exposed to a ledger in the future. cations is something that should be done Looking at the several KYC utilities But bringing DLTs into enterprise data on a basis of responding to actual need,” currently out there, and fi rms fi lling management will inevitably require he wrote in his paper. “While the in as many as 270 fi elds for counter- wrenching decisions about what underlying technology can certainly be party identifi cation, as an industry we should be pulled into the mix and what developed in the abstract, it would likely devote a lot of eff ort and cost just to shouldn’t, Shaw suggests. be a waste of resources to try to build gain consensus on KYC requirements. “Trade reporting and compliance applications that ‘connect the chains And even then, fi rms will still augment will be completely on-chain, given that together’ without a clear underlying use those internally with their own values,” it is one of the primary selling points to case-driven reason for why such a thing Shaw explains. regulators, but you can foresee digital would be useful.” “Ledgers should allow fi rms and asset and account issuance, and even But, then again, ledgers and data KYC service providers to side-step a market data consolidated tape run- management have never really been much of that work—to go from a mode ning via a ledger as well,” Shaw says. quite so far apart as they seem—cer- of description to identifi cation. The “Conversely, most fi rms will be far tainly not where patience is concerned. same can be said for supplying global more careful about proprietary valua- Shaw notes a rare, if accurate, compari- timestamps, shared evaluation services, tion models and asset classifi cation, and son: Legal Entity Identifi ers and bitcoin and relevant observables supplied for we’re working in consortium right are just about the same age, and notes smart contracts. These are great spots now on a project that would preserve that—even with the broad industry to take away some operational pain. KYC client risk-rating and relationship support and participation, and regula- Doing so would bring institutional analysis off -chain, while moving iden- tory pressure for adoption—LEIs still ledgers closer to innovations we see in tifi cation on chain, as well.” haven’t achieved critical mass. the startup space like [former Barclays To navigate those choices, fi rms Without any regulatory impetus CEO] Antony Jenkins’ 10X digital will need to change their way of for adoption, fi rms will have to decide banking off ering, that really focus on thinking from post-facto, backward which business cases should be a core optimizing ledgers’ data layers and mapping to forward planning—from ingredient that needs to be baked into deploy APIs to focus on user experi- slinging chains around the lab to their DLT strategy, and which are ence in a rigorous way,” Shaw adds. future bedrock. merely the icing on the cake. „

waterstechnology.com August 2017 33 Human Capital Human Capital

CME Hires Ex-Analyst, where he worked on the exchange’s Strategist Honoré to Lead Data industry-specifi c cloud project Product Management FinQloud, which was later sold to CME Group recently hired Adam Amazon Web Services. Honoré has Honoré as executive director and also held roles at research consultancy head of product management for data Aite Group and software development services, leading a team responsible for company Comprehensive Software delivering new data products for both Systems. real-time and historical off erings. Based in Chicago, Honoré reports Those also include the management to Craig Mohan, managing director of of both data administration and market technology and data services. distribution on behalf of third-parties His hire is part of a broader Adam Honoré leveraging CME Group’s technology initiative by the exchange to leverage and expertise, offi cials say. The team derived data as a revenue stream. “It is also responsible for the product defi nitely represents an important Shank was previously strategy and management of the platforms that revenue stream to us and our team is business transformation manager at support the delivery and administra- well on its way in responding to and strategy consultancy Monitor Deloitte tion of those products. executing on the growing demand (formerly Monitor Group), prior to Prior to joining CME, Honoré for our data IP,” said CME president which he worked in the healthcare was chief executive of fi nancial Bryan Durkin during the exchange’s and insurance industries, including markets and technology advisory fi rm second-quarter results. “We’ve… as senior manager of operations and MarketsTech. Before that, he was a instituted a strategy team, and this development at HealthCurrent, managing director at Nasdaq OMX team is responsible for expanding our director of operations at eHealth product off erings, and this is largely Trust, and senior fi nancial analyst at being driven by business intelligence Allstate Insurance. At Apcela, Shank eff orts that are underway today so reports to chief executive Mark Casey, that we can have a better insight as to who says he will play “an essential the consumers of our data and how role… in delivering our award- that has changed. Data is not being winning solutions against our clients’ utilized just strictly as we would think increasing demand for better speed, for trading terminal usage. It’s being performance, and security as they utilized for analytics, development transition to the cloud.” of other products, and we’re in the process of ensuring that the products Ultumus Builds US Base with and services that we off er are best Redstone positioned to commercialize those Veteran bank data and electronic opportunities.” trading technology executive Scott Redstone has joined index and Shank Boards Apcela exchange-traded fund data provider Low-latency network and cloud Ultumus as head of US distribution. hosting provider Apcela (formerly In the newly created role as Ultumus’ CFN Services) has hired Travis sole US staff er, Redstone will perform Shank as vice president of operations, all client-facing roles, including responsible for overseeing day-to-day business development and hands-on Travis Shank operations and client deployments of support. Redstone most recently ran Apcela’s global application delivery his own independent consultancy, platform. Easton Scott, during which time

34 August 2017 waterstechnology.com Human Capital

Axioma Pays Severance he performed a contract assignment New York-based risk management tech- to integrate Delta One Solutions’ nology provider Axioma has appointed SolaDB into Thomson Reuters’ Thomas Severance to the newly-created framework, prior to which he spent role of chief revenue offi cer. fi ve years as head of data acquisi- Severance has two decades of experi- tions and vendor management for ence in the areas of risk management, electronic trading at Merrill Lynch, analytics and technology. He was previ- ously managing director of analytics at where he fi rst met Ultumus’ founders IHS Markit, overseeing the vendor’s risk in their previous roles at Markit. Thomas Severance strategy and analytics business in the Before joining Merrill Lynch, he Americas, prior to which he was director was director of pricing and reference for Latin America at Misys, vice president of data at Bank of America Securities, Sebastian Ceria, chief executive offi cer global sales at Quic Finanical Technologies, director of risk technology at Credit of Axioma, says Severance will lead the managing director at Algorithmics, and a vendor’s efforts to increase “penetration Suisse First Boston, vice director of salesperson at Bloomberg. of global markets and drive sales.” global business technology at UBS, and head of fi xed income research data management at Morgan Stanley. Prior to that, he was head of data sible for driving software vendors and among its fi nancial, commodities, management at fi xed income data their clients to migrate content and media and technology clients. Sheehy provider EJV Partners. applications from legacy infrastructure was most recently general manager of “As someone who has been to AWS’ cloud solutions. Hutchinson North America at analyst stock rec- involved in index and ETF data was most recently head of capital ommendations site TipRanks, prior to for many years I’m very happy to markets solutions for North America which he spent 10 years at Chicago- join the Ultumus team as their US at UK-based network provider Colt, based ratings and research provider distribution manager,” Redstone says. where she was previously US director, Zacks Investment Research, including “Ultumus aims to decode and provide Scott Redstone having joined the company in 2014 as business development director. a spotlight into the complexities of from cloud solutions provider Unitas He was also principal of Analytic ETF information so it is accessible to Global, where she was regional direc- Research, which created ValueSheet, a wider audience—not the preserve tor. Before that, she founded and was a Microsoft Excel template for analyz- of a limited group with specialized president of datacenter consultancy ing stock performance. knowledge. CMOs [collateralized Colocation Concierge, prior to which mortgage obligations] were once she was strategic account director at StatPro Enlists Entwistle for highly profi table, but information on Telx, a strategic account manager at Americas Sales how they worked was hard to get. It Equinix, senior account manager at UK-based portfolio analytics and took decades before CMOs became Level 3 Communications, and global pricing software vendor StatPro information transparent. Ultumus account manager at Savvis. has hired Will Entwistle as North wants to do the same for ETFs but at a AWS offi cials decline to comment American sales director, to expand much faster pace.” on the specifi cs of Hutchinson’s role. the presence of StatPro’s Revolution cloud-based analytics platform in AWS Taps Colt’s Hutchinson Barchart Taps Zacks Vet the region. Entwistle, who also joins to Drive Financial Cloud Sheehy for Institutional Sales StatPro’s group executive board, was Migrations Chicago-based data and analytics previously senior vice president of Amazon Web Services has hired provider Barchart has hired Bryant sales for institutional and investment longtime fi nancial networks account Sheehy as head of institutional sales, management solutions at SS&C management and management execu- responsible for expanding the reach Technologies, prior to which he was tive Julie Hutchinson as senior partner of the vendor’s institutional datafeeds, vice president of wealth manage- manager for fi nancial services, respon- managed web solutions, and software ment solutions for the Americas at

waterstechnology.com August 2017 35 Human Capital

Interactive Data, and VP of fi nancial vendor reports that the move is a Raskin was chief executive offi cer services and insurance sales at strategic response to increased demand for North America at GBST, an Software AG. Before that, he was VP in Europe as a result of upcoming Australian provider of technology of the Americas at latency and systems regulatory reporting deadlines. for brokers, custodians, investment monitoring vendor Corvil, and spent “Our growing client base has banks, and fund managers. Prior almost fi ve years at NorthStar Systems become accustomed to both our depth to that, he was an executive at SIX International, including as president of sector knowledge and our ability Financial Information USA and and board director, SVP of sales and to provide fully tested solutions ahead predecessor company Telekurs for marketing, and managing director of of regulatory requirement schedules,” a total of 28 years, most recently in sales, prior to which he spent six and Lynch says. David Morris the role of president and managing a half years at IBM as wealth manage- Morris says he was “impressed” director. ment solutions sales leader, and on by RegTek’s vision. ”They clearly Raskin will continue to report the vendor’s Wall Street sales team for have the right technology at the right directly to Tom Jordan. enterprise solutions sales. time, and I am pleased to be part At StatPro, he reports to group of the team that takes the company AIM Software Grows chief operating offi cer Andrew Peddar. forward,” he says. Professional Services Team RegTek’s control and compliance Data management technology vendor David Morris Joins RegTek software is called Report-It. AIM Software is increasing its profes- Team in London sional services team with two new RegTek.Solutions, a New York- and Jordan & Jordan Promotes appointments. AIM has appointed London-based reporting and compli- Raskin to Lead Market Data Anuraj Soni global head of profes- ance software vendor, has hired David Expansion sional services, responsible for all Morris as product manager. Financial industry services provider global AIM software implementations Morris will be based in London Jordan & Jordan has named Barry He brings more than two decades and brings with him more than a Raskin managing director of its of experience, most recently as chief decade of fi nancial technology experi- market data services practice. Raskin operating offi cer at Magic Software, ence, most recently as a senior product replaces Tom Etheridge, who will Inc., prior to which he spent 10 years manager at UnaVista. continue to work for the fi rm as a in various roles at Headstrong and Brian Lynch, RegTek’s chief senior advisor on select projects. Genpact (which acquired Headstrong executive offi cer, calls Morris a “key Raskin was previously managing in 2011), and previously worked in hire.” In a statement, the software director of Jordan & Jordan’s manage- compliance IT and private wealth ment consulting practice. He will now management at Bank of America and focus on expanding the company’s Goldman Sachs, respectively. In his Market Data Reporting product – a new role, Soni reports to AIM chief managed service for automating executive Gayatri Raman. exchange and vendor data reporting Meanwhile, AIM has promoted requirements – and other market data Amina Loznica to head of profes- consultancy services. sional services for Europe, reporting “This is an exciting time for Barry to Soni. Loznica has spent 13 years to be taking over the market data at AIM in two stints—separated by a area as the growth in market data period working as an IT consultant revenue for exchanges and vendors at Raiff eisen Zentral Bank—in roles is expanding due to changes in data including product head, delivery policies, technology and distribution,” director, and project manager, prior to says the company’s president and chief which she was a a software engineer Amina Loznica executive, Tom Jordan. at Tscheinig & Partner Workfl ow Prior to joining Jordan & Jordan, Barry Raskin Software Consulting.

36 August 2017 waterstechnology.com FREE attendance for qualifi ed end-users

13th September, London Marriott Grosvenor Square

The leading event for fi nancial data, regulatory and technology professionals.

Inside Market Data and Inside Reference Data are delighted to announce our annual fl agship event, the European Financial Information Summit, will be taking place on Tuesday 13th September 2017 at the Marriott Grosvenor Square hotel in London.

Attracting over 400 market and reference data executives, the Summit will address key issues faced by data leaders as they continue to navigate the challenges of the unpredictable fi nancial market.

MiFID II and Global Regulation Reference Data AI and analytics Governance and quality Data Science Reg-Tech Market Data Risk modelling

To register please contact Jodie Purser call +44 (0)207 316 9004 or email [email protected]@incisivemedia.com

For sponsorship opportunities please contact Tom Riley call +44 (0)207 316 9780 or email [email protected]

Lead sponsor: Panel sponsor: Co-sponsors: Associate sponsors:

Hosted by: @WatersTech #EuFIS fi nancialinformationsummit.com/eu smartstreamrdu.com Simplifying Reference Data. Together.

Established as an industry utility based on the principle of market commonality, collaboration and contribution, The SmartStream Reference Data Utility (RDU) delivers a cost efficient approach to realize the truth of the data contained within the industry with guaranteed results. Managing data holistically across legal entity, instrument and corporate action data, this shared service model promotes fixes to data processing across the instrument lifecycle and the events that originate and change data. Join the revolution, contact us today: [email protected]