A Very Special Year

Data is the lifeblood of the capital markets: Whether it is used to mitigate risk, drive new business decisions, or simply to comply with the new regulations, it is of paramount importance for technologists to know how to handle it.

Throughout the year, Waters has published a series of special reports on a variety of topics that drive the industry, and, in the first few months of familiarizing myself with the subject matter, it became clear to me that data was the link between them all. But of course, all our special reports from the past 12 months have highlighted their own challenges and idiosyncratic requirements. In case you might have missed some of them during the course of the last year, here is a round-up of Waters' special reports for 2013.

Algorithmic Trading - March 2013 - sponsored by: Azul Systems, OneMarketData

This special report takes an indepth look at the parameterization of algorithms and the ability for traders to modify the specificities of an algorithmic trading strategy as the market evolves, ensuring best performances and risk control at all times.

"The vital measure of an algorithm's profitability and stability are hidden in the ‘what-if' conditions of market history. Regulation and fear of algo failure has triggered a laser-focused emphasis on pre-trade risk. While thorough testing can validate new algorithms, it is pre-trade risk that is the sentinel safeguarding the castle and ultimately the entire kingdom."
Louis Lovas, OneMarketData.

Regulations - June 2013 - sponsored by: Linedata, SIX Financial Information

In the aftermath of the financial crisis, financial services firms were hit by a tsunami of new regulations that has impacted their day-to-day operations significantly. Technology has come to rescue for buy-side and sell-side firms, helping them to meet their regulatory responsibilities. But without an enterprise-wide strategy on how to leverage the right data, when, and where, the chances are that firms won't be able to anticipate changing demands. Clearly, flexibility is the key.

"A competent technology strategy should bear in mind that the regulatory environment is changing constantly. Therefore, the systems and processes have to be designed in a way that allows regulatory changes to be easily integrated. As national and international regulators focus on promoting transparency and sound risk management principles through regulatory means, there are commonalities in terms of data requirements and business processes. Leveraging those core principles can significantly reduce the technology implementation burdens and reduce implementation costs."
Jacob Gertel, SIX Financial Information.

Complex-Event Processing - July 2013 - sponsored by: Apama

Complex-event processing (CEP) technology is no longer a niche product ─ it has spread across the industry as the first front- and middle-office product to allow capital markets participants to analyze large volumes of fast-moving data across multiple parts of their business. It is now a critical part of firms' infrastructure from algorithmic trading strategies to real-time risk monitoring. Build versus buy and Java-based versus custom-built C/C++, are just two of the the issues we addressed in this report.

"CEP can add additional value by analyzing standard measures, such as pricing and depth-of-book, as well as complex measures, such as volatility of the instrument (and related instruments), collateral adjustments, and credit charges associated with the trade and news."
Theo Hildyard, Apama.

Big Data - September 2013 - sponsored by: Cloudera, Intel, MarkLogic

Data is a big deal. The arrival of a new kind of chief officer ─ the chief data officer ─ heralded the start of a new era in data management, an era of structure, norms and rules, and rock-solid organization to get the most value out of the reams of unstructured data constantly entering a firm's operating environment.

"Recent changes in the financial industry have been substantial and data is a vector of organizational change. As organizations change, they must adapt to the way they manage data. Data policies are often outdated by the time they are finalized and this must be prevented. Data ownership must also be considered because if it is unclear who owns the data, there is potential for people to change it, thus damaging its quality."
Mark Record, partner, Capco.

 Risk Management - October 2013 - sponsored by: Eagle Investment Systems, S&P Capital IQ

In the wake of the financial crisis, risk management practices were elevated to the top priorities for financial institutions, always on the lookout for new ways of lowering their market, credit and operational risks. There's not a lot new is this respect, except that now, risk solutions have to fulfill additional requirements such as reporting capabilities, real-time analysis, and stress tests, in a fast-paced, cross-asset environment.

"I think risk is contingent on sound management and good data. Poor management can lead to outsized risk and not doing proper due diligence. I think there can be a problem of trying to eliminate risk by creating a portfolio that is completely offsetting and has difficulty making money."
Tim Clark, Triad Futures.

Investment Book of Record - November 2013 - sponsored by: Bloomberg, DST, Eagle Investment Systems, SimCorp, SunGard

If there is one capability the buy side should look to stive toward, it is the Investment Book of Record (IBOR). By constructing a firm-wide, start-of-day position, based on the previous day's accounting positions ─ but crucially, also including overnight unposted transactions, corporate actions, and other income events ─ portfolio managers can make more judicious investment decisions.

"One direct implication of having a reliable IBOR is that when managers have robust starting and ending points for their portfolios with full disclosure on positions and associated cash flows, they can make knowledgeable investment decisions. These positions are inclusive of many activities occurring in the back office on a daily basis, such as fully reconciled cash and positions adjusted for current-day corporate-actions activity. IBOR should combine these activities with the full day's trading activities (based on T). Then the IBOR data can be made available for start-of-day, end-of-day, and intra-day snapshots."
Tony Warren, SunGard.

Market Surveillance - December 2013 - sponsored by: Apama, Nasdaq OMX, Nice Actimize

This year has witnessed technical outages at trading firms and exchanges that have disrupted the markets, while regulators have increased their focus on market surveillance systems. But the ever-increasing complexity of the market structure and the speed at which electronic systems are running, make it challenging for firms and exchanges to regain control as quickly as possible when a potential threat occurs.

"Trade surveillance performs the role of the police officer of the trading floor, ensuring everyone knows there is someone watching and that breaches of regulatory rules are detected and pursued. In this role, being a deterrent is as powerful as being a detective. With trade surveillance having been traditionally a post-trade function, usually a day or two after the trading took place, there is a mismatch in terms of culture."
John Edge, managing director, capital markets strategy, NICE Actimize.