Data Solution: Competitive Edge in the Financial Sector
While the hype surrounding the financial industry boasts of turning lucky men and women into millionaires overnight, in reality, the situation is very different. As any veteran of the financial business can attest, success in this industry almost entirely depends on having accurate and timely information and the ability to use it judiciously.
The Role of Technology
Technology is becoming more integral to the structure of organizations. The demand for larger amounts of information within shorter time frames is rapidly increasing. Information providers are responding to this demand by supplying increasingly complex and exhaustive data. Consequently, data consumers now face a challenging situation where they have to scale up their data collection capacities, augment their ability to store and retrieve the collected data efficiently, and assess this data for credibility and accuracy. A company that is successful at performing the above will be in a unique position to define a competitive advantage.
A 2013 study by State Street Corp., a leading financial services provider, has classified investors based on their ability to create a competitive advantage for themselves into two distinct groups: “data leaders” who are fully capable of exploiting the full potential of available data and “data laggards” who find the complexity of managing data overwhelming.
The Pressure from Regulations
Increased demand from regulators, the constantly growing volume of trading data, expansion of new asset classes, and increased demand from clients and investors are fueling a change in the way data leaders manage their data. Sound risk management practices and improved risk management tools are cited by 34% of data leaders as their priority in driving data policies. However, the study notes that only 29% of asset managers think they have adequate internal risk information. The most important reason for this trend is the diversification of investment portfolios to include newer asset classes. Since different types of assets have specific data associated with it, the diversification process multiplies the amount of data required to manage the portfolio. The impact of regulatory compliance on companies has risen exponentially after the financial crisis. Newer regulations require companies to collect and analyze larger amounts of data. Incorporating the demands placed by regulation into their existing infrastructure has become extremely challenging for companies. For any company, achieving regulatory compliance is largely a question of the investment the company can make in technology. A robust IT framework aimed at regulatory compliance can be a significant strength and a valuable asset to the company over time.
Demanding Nature of Electronic Trading
Another challenging area for companies in the financial sector is the steady growth of high frequency electronic trading. This trend has had a profound impact on the data management strategy of investment companies. As per the State Street survey, 75% of cash equities and 60% of foreign exchange spot market transactions are electronic. Electronic trading is characterized by the extremely high frequency in which it takes place. Consequently, electronic trading has not only resulted in a massive increase in market activity and volatility but also in the volume of trading-related data. Only 20% of respondents in the State Street survey were able to express confidence in their ability to effectively manage trading data and optimize trading strategies.
In the State Street survey, financial analysts listed collecting accurate data as their main challenge. This was closely followed by the ability to collect data in a timely fashion as well as the ability to integrate the different sources and data types. Other challenges included: customizing data to suit different end user needs, extracting broader themes and forward-looking insights from data, and managing the increase in data volume.
The solution for most if not all of these problems is a tightly integrated yet modular end-to-end data management solution. The ZEMA solution, developed by ZE PowerGroup, is one of the premier data management products catering to the financial sector according to industry experts. With several clients in the banking, insurance, and financial trading sectors, ZE has extensive experience in the field.
In order to address challenges faced by the financial sector, ZE has developed specialized tools that address specific issues related to data management in the sector. ZEMA already collects data from major sources of financial data, including exchanges such as ICE, NYMEX, and NASDAQ as well as financial data providers such as Bloomberg and Thomson-Reuters. ZEMA is capable of handling data from any source, published at any time granularity, and in any electronic format.
The ZEMA solution has an abundance of features that offer unrivaled integration capabilities focusing on both internal and external data. One of the main concerns raised by respondents to State Street’s survey was the difficulty in integrating internal applications and data across the organization. ZEMA utilizes tools focusing on integration by feeding data and analytics to any downstream system.
 “Leader or Laggard? How Data Drives Competitive Advantage in the Investment Community,” State Street Corporation, November 12, 2013, accessed October 15, 2014, http://www.statestreet.com/wps/wcm/connect/15c2018041cd97cb9bd39b6016780656/13-20196_DataAnalytics_VisionPaper_FIN_WEB.pdf?MOD=AJPERES&CONVERT_TO=url&CACHEID=15c2018041cd97cb9bd39b6016780656