Front-Office Data Focus Spurs IBOR Push

Build Versus Buy
The aforementioned scenario works well for larger investment houses such as Legal & General, but it may not be practical, affordable, or appropriate for smaller, more specialized firms. For these firms, questions of developing in-house software, using vendors or even outsourcing, remain.

“There’s no right or wrong answer, but it depends on your taste and flavor, and how you want to profile your risk,” says Northern Trust’s Beale. “Organizations get the scalability that an outsourcer provides, and that service enables them to focus on their core competencies. Building in-house enables you to tailor it to your own specification, while using a vendor product is somewhere between the two. You gain the ability to use an application that has been designed, in part, to solve this problem, but you still have to service and support the infrastructure and continually invest to maintain it. It’s about degrees of how much you want to subcontract the activity.”

It even comes down to the profile of the organization itself—differences between hedge funds and long-only asset managers are apparent in this regard, as some hedge funds already model their portfolios on real-time information and generate trading decisions on that, albeit usually without the intra-day corporate actions and similar data that an IBOR supplies on top. Regulatory concerns around reliance on single outsourcers, also, may force firms to keep their own record of positions as well as those provided by their third-party administrators.

Master Records
When taken from a broad, top-down view, most people agree that an IBOR system makes sense for larger, more complex buy-side businesses. Operational efficiencies gained from consolidated, single views of investment activity can introduce real gains measured in dollars and cents, while risk is partly mitigated through everyone working from the same information. In terms of regulation, imminent oversight in the form of the Foreign Account Tax Compliance Act (Fatca), Basel III and other areas are introducing various reporting requirements for buy-side organizations that an IBOR system can help to alleviate. Creating a master source of data in this form, while potentially challenging, is not an insurmountable task.

 

Salient Points

• An IBOR system is a single source of consolidated data that combines positions, cash flows, dividends, reference, and market data, which can be interrogated by various areas of an investment organization according to need.
• Integrating various data sources can be a challenging prospect, and although no out-of-the-box vendor solution for the buy side yet exists, efforts to produce dedicated applications addressing this need are under way.
• Outsourcing to a third-party administrators or building such platforms in-house are also options, but this depends on the size and scale of the organization in question.
• The sell side has been using IBOR systems for years, but the buy side is beginning to take notice of the concept, driven largely by front-office demand for actionable, reliable, and up-to-date information to support trading decisions, and the increasing complexity of these businesses.