Regulatory Challenges of Financial Markets: Data and MiFIDs II
The Financial Markets are complex and are highly data-driven. The Directive MiFID II (Markets in Financial Instruments) will be implemented in the year 2018 and it is expected to have a significant effect on the European financial industry. It will affect individuals ranging from banks, fund managers, traders, brokers and more. The expectation is to have the European markets become safer, efficient and more transparent.
Pre-trade and post-trade data packages will be more accessible so that improved market insights will be able to be provided making it easier for customers to aggregate relevant data. In addition, there is hope that a significant portion of over the counter trading will be shifted to a regulated trading venue. With the implementation of this directive, The European Union will have the intention to compete with the vigorous US capital markets.
As with any industry, a data-based approach to decision making is one of the most effective strategies for increasing efficiency, competitiveness and meeting ongoing business demands. The proper use of data can lead to valuable insights which in turn can positively impact a business. Given the importance of data for a business, it needs to treated as a corporate asset, meaning a company needs a robust data management strategy and needs to have data management tools in place.
Data moves throughout the entire organization and is used to automate business processes, feeds downstream systems and help end users create deeper insights. Whether data is flowing through a large multinational organization or a small local business, there are some standard challenges every business faces when trying to get a grasp of what data is necessary and how to make the best use of it. Here are a few:
When data contains redundant, duplicate or incomplete records, how does an organization make this data useful?
As a simple example, receiving multiple unnecessary marketing emails regarding the same campaign. This could be due to the marketer containing slight variations in the recipient’s name. This minor imperfection in the database would result in additional costs being incurred. Furthermore, if the marketer was operating at a high level, these small additional costs would be magnified which would lead to an expensive
Over the last few years, resources for management information have increased. The internet has had to adjust from being mainly a research-oriented system to one that provides diverse information for a business audience. Due to these developments, the question is no longer whether the information is available, but where specific information can be found in the shortest time.
With data being recognized as a critical business asset by numerous enterprises, the privacy of that data is a vital concern. Data breaches across various organizations around the world have increased drastically over the past few years. In addition to the costs of detecting and recovering the data, valuable information is lost while businesses are disrupted and reputation of the enterprises are damaged.
The next big challenge for companies is intelligently handling the ‘access’. Who needs access to your data? Who has ultimate control over data management decisions? In many organizations, the top executives, IT professionals and front-line employees may all require access — and many rely on mobile devices which can make the data vulnerable. This means companies must find a way to ensure total security without arbitrarily limiting access.
A constant difficult task that companies must overcome is the rapid growth of data; the strain of collecting, managing and creating value from the data. According to IBM, an estimate of 2.5 quintillion bytes of data is created daily. This leads to companies struggling to face challenges of aggregating, managing and creating value with the data. The importance of having large volumes of the market, consumer, and operational data processed and validated in a time-efficient manner is critical for decision-makers to be able to make difficult business choices that could heavily impact the business. With the generation of such vast amounts of structured and unstructured data, companies will often grapple with the arduous end goal of being able to efficiently manage their data. Manual processes and in-house development cannot keep up with the growth and are fraught with high costs and quality issues. A large multi-commodity organization could need access to thousands of independent source a day which could amount to 10s of millions of records across a 24 hour periods
As the data sources can be fragmented and disparate in nature, the format of the data collected is often non-standard and highly inconsistent. The data from various sources may contain data in different formats, sourced from different locations, posted at different time ranges and granularities. Handling the multi-faceted data with non-standard formats has become one of the biggest challenges for the organizations. Data inconsistencies are nearly unavoidable. Without a solid data management process in place, the end result would lead to inaccurate data.
Centralized and Consistent Data Access
It goes without saying that a business that relies on data needs to ensure that it is readily accessible and at the architectural heart of the business. By centralizing data and data access, a golden copy is created that everyone can rely on and is considered the single version of the truth. By being able to use the same numbers across the organization, it enhances the reliability, trust and the auditability of the data and the decisions made on that data. User and systems can all benefit from this and enhance compliance and reduce data collection redundancy and cost across the organization.
Data Governance and Administration
You need to know who is using data and when. Data is at the heart of a business so it’s security is tantamount to a data management system. By respecting data entitlements and controlling who sees sensitive data, you are able to easily demonstrate compliance with your internal data access rules and any data contracts you are engaged in with third parties.
Hands off automated business processes
The more a company relies on manual processes and spreadsheets the more risk they introduce into the organization. A robust data strategy also focuses on a hand of automated data from starting from collection all the way to integration with key business tools such as ERP, BI, ML, ETRM and the like. The more you are able to automate, the more you reduce risk, increase auditability, enhance employee efficiency, improve scalability, increase business responsiveness and create employee satisfaction.
Flexiblity and Ease of Use
No matter how rigorous a system is from a compliance standpoint, it needs to cater to the needs of the business. End users want ease of use, downstream systems have their own needs and technical staff wants to be able to extend the use of the system to do new and different things. A good data management system has to provide highly interactive and visual tools for its end clients including rapid data access, the ability to create graphs and tables and the ability to get data into Excel a common tool of choice. We need tools to be simple enough for a new user but powerful enough to meet the needs of the most advanced business technical resource. Downstream systems and IT staff need multiple points of access to data and analysis including APIs, Web Services, Database access, messaging and the like. The more options that are available the more systems and use cases that can be dealt with.
These are just some of the challenges a business faces when it realizes, it needs to be more data-centric. Never before have we been faced with so much opportunity to leverage data as an asset but at the same time be so easily overwhelmed by the data problem. The good news is that there are mature market-based products that can help overcome the burden placed on them. These tools focus on data collection, data administration, data extraction and analysis, process automation and system integration. Tools like ZEMA can be offered to companies across different deployment models and license schemes providing even greater flexibility to meet budgetary, architectural and strategic business conditions. The key point is that businesses that want to succeed in today’s dynamic financial markets and want to ensure that they comply with internal and external controls and constraints need tools that help them along the way.
You can get more help on how to succeed in today’s dynamic financial markets by contacting us today!