Somebody shows up at the door and says I’m going to give you a ton of money to run it against these new types of securities to create products out of it and you just have to get it done.  – John White Global Manager, Investment Management Data Services, State Street Global Advisors

The markets are fragmenting, transactional volumes are exploding, costs are rising and so too are clients’ demands as firms confront regulatory demands, new technologies, whether to build, buy or outsource – and now there’s cross-asset trading. Through it all, reference data at its core continues to be about descriptive transactional information.

For senior reference data executives like State Street Global Advisors’ John White, one of 10 participants at a recent Advisory Council roundtable co-sponsored by Microsoft and Avanade, who said, “We all need to be extremely nimble as the markets change,” the challenges are real. Here is that hour-long conversation moderated by WFS contributing editor Marty Rabkin.

White: There’s a major change in the industry regarding different types of securities, specifically derivatives, that are constantly being set up, and I’d like to get other people’s feelings on how do we address that because we all need to be extremely nimble as the markets change.

Bajwa: One of my biggest concerns is how other firms centralize data and made it easy to distribute across the enterprise, because centralization is a big issue with reference data and consistency across the organization.

Brower: As I see it, the biggest issue we have as an industry is the cost and time to do integrations.

Saint-Amour: For me, I’d like to talk about time-to-market speed and latency, because how can you make important business decisions with data that’s stale, old …that’s not aggregated? And how do you handle challenges of trying to get clean data so you can do the analytic work?

Serenita: Clients are becoming more sophisticated, so we have a situation where they’re using more of our services and asking for online access to our product sets crossing traditional product silo boundaries. Therefore, reports have to be right and on time. So, it comes back to latency as well as convergence across business silos. And it always has to have the client focus in mind.

Clients are becoming more sophisticated, so we have a situation where they’re using more of our services and asking for online access to our product sets crossing traditional product silo boundaries. – Peter Serenita CDO, JPMorgan Chase

Bottega: We could probably talk about 10 topics here but I’ll throw out a few buzzwords: culture change and governance, strategic infrastructure, legacy handcuffs and integration. Put those together, that’s enough to keep me employed for the next 10 or 15 years. (Laughter)

Those are the challenges I think we as an industry face. Then again, these points are more about data management than reference data and there’s a distinction. John mentioned specific instruments, Craig pinpointed speed and while all of that will get addressed, it won’t unless we address the management of data in general.

I’ve been at Citi for 18 months and our challenges are no different from the industry but one thing that we’re really good at on Wall Street is coming up with work-arounds, which puts us in more of a bind, that plus trying to unwind all these legacy systems is very difficult.

Then again, it’s a cultural change. There are people happy doing what they’ve been doing for years but when you suggest a change, it’s a different situation.

As for the integration challenge, it’s clearly there. The analogy is building a bridge half way across the river. We do a lot of that but end up with a lot of vehicles in the drink, right?

Brower: I’ll echo that, adding the word ‘convergence’ because one of the things we’re really talking about when dealing with integration is the ability to converge and understand the information, how we’re managing it, where we’re using it and where some of those legacy barriers start to exist. 

If we agree on how to create a business case, it helps the data-service providers working with us.  This is very important.   – Safi Bajwa MD, Manager, Reference    Data Systems Group, The Bank of New York Mellon

To John’s point, the cultural part of that is in understanding how we have to surpass the legacy barriers. Because there’s nothing that’s going to fit in like a nice jigsaw puzzle where all the pieces just fit together. These puzzles weren’t built to be put together that way, but the better we get at it, the faster we get, including our ability to understand and discover and bubble up the things that need to be done at the higher level. Then it’s a matter of, do you have the right governance process before you actually execute on it.

 Gomez: What seems to be a big challenge to everyone, just to take it up a notch for a moment, is that the issue of managing reference data is going to be a dirty job. Maybe one of the biggest problems is that it’s so manual upfront. It’s like keeping the house tidy. You gotta tidy up one room, tidy up the next room but as soon as you leave one room, one of the kids decides to have a party in that room. All this is being driven, for example, by increases in the number of products and the business imperatives behind that, whether it’s by regulators and the regulatory imperatives there. Meaning, there’s always a party going on that you have to clean up for afterwards. So, how can we take some steps to automate an approach to solving this?

Bajwa: It’s not that you clean up one room, go to the next and the next. No, the issue is you clean up one and while you have a strategy of going to the next room, it takes a long time to get there. But you can create a strategy of cleaning up and then moving on.

The problem is, how do you move on and that brings me back to integration as one of three key topics I’d like to discuss today. Everyone’s done integration, everyone thinks they’ve done integration and everyone has problems with integration. But it’s just not easy and everyone has a different view of doing it. Number two is governance, because everyone’s in kindergarten when it comes to governance. That’s how I feel. The third, not so exciting but everyone talks about it, is managing quality.

ROI is not always the case, because when you have a big system you could convince a senior manager that, rather than three security masters, he needs only one.   – Viet Nguyen Managing Director, FICC Information Technology, Societe Generale Corporate & Investment Banking

Bottega: I’d like to add one, the business case. We’re constantly faced with capturing metrics, showing return on investment, which in the data space is probably the most problematic. But these problems are systemic to the industry.

WFS: Your firms are spending greater amounts of money each year for risk reduction and improving quality of data, but why is it taking so long with all the new technology and brainpower tossed at it?

Bajwa: The problem’s with the integration.

 Tabb: I disagree. I don’t think that this problem can actually ever be fixed, because I think it’s inherent in how we make money and how we build products and how we spend money on technology. The technology dollars are always going to go to the guy who can bring billions of dollars to the table.

They create new products, which drive our businesses to generate the revenue and as those products commoditize, the profit on them declines and then the technology budgets go to the next product. What you wind up with is a string of islands of technology that become very difficult to reintegrate.

I think that the custody business may have a little bit easier time fixing this than the broker/dealers, because they’re out there trying to hit the home run.

Serenita: To Larry’s point, if you don’t start with a data strategy, you don’t have a prayer. But if you do and you have a new system in development, it becomes a governance process. Do you allow that system to go live because it’s going to make so much money without the data hookup? Or do you have enough fortitude to say, no, in the long run, this is going to be problematic, and as part of the new system that’s going to make me billions of dollars, it’s got to be hooked up?

Gomez: It’s a combination of cleaning things along the way and setting up the front-end controls for any new things, with respect to governance, to get some automation to it.

One thing that we’re really good at on Wall Street is coming up with work-arounds, which puts us in more of a bind. – John Bottega CDO Citi

Serenita: Because you need some level of being able to have control over your application portfolio.

Tabb: As well as the integration and data bus to be easy enough to hook into, so that the integration is not…

Serenita… not painful.

Tabb…not after six months’ worth of work and a gazillion dollars.

Brower: It’s the technology integration and the data integration. It’s real easy to get the technology integration. Data? There’s no standard on data.

White: How do you build your data program? You have to base it on data standards. So, meta-data models have to be established and we’re driving that very hard but it’s difficult because no one wants to adhere to it.

One thing that we haven’t mentioned today is business process. What we’re discovering is you can’t take on the whole business process. It’s too big, too broad. We’re taking thin slices of it. If we fix one piece and extrapolate the saves across the business, we can realize a better save. But it’s amazing that it’s not a data problem or a technology problem – it’s a business process problem.

Serenita: But in order to support that, you’ve got to have the overall strategy. You clearly have to roadmap it.

It’s the technology integration and the data integration.  It’s easy to get the technology integration.  Data?  There’s no standard on data. – Norm Brower Executive Director, Reference Data Solutions Morgan Stanley

White: What you’re running into, and I’m totally in line here with Larry, is that this is a huge cultural issue all of our organizations run through. Somebody shows up at the door and says, I’m going to give you a ton of money to run it against these new types of securities to create products out of it and you’ve just got to get it done. But they’re looking for a two-week delivery, not something that takes three to six months, and they come back to you and say, whoa…!

Brower: Why does it take three to six months?

White: Because we’ve created this huge nest.

Bajwa: I want to step back a bit and take up Larry’s statement as a challenge. He said it can’t be done but it’s in all of our interest to get it done. So, let’s take that challenge. The best way to address that is to understand how we make a business case because that helps everyone here as we all have the same problem inside our institutions. If we agree on how to create a business case, it helps the data service providers working with us. This is very important.

Bottega: I agree and there are industry forums focusing specifically on building the business case in the data-management space.

WFS: Such as?

Bottega: EDM Council has been focusing on that. We’ve put forward a number of proposals.

But just to go back to John’s comment about two weeks versus three to six months, let’s face it, folks, it’s really an implementation challenge but we haven’t finished building our infrastructure. What’s hap­pened in the past was there was no conversation. Today, we’re actually opening those conversations and it becomes a negotiation.

What seems to be a big challenge to everyone is that the issue of managing reference data is going to be a dirty job.  – Julio Gomez Global Head of Research Financial Insights

White: I agree with you, but what I’m saying is that it’s a cultural shift that the business, the organization itself, needs to come to realize, that they can’t just go around you anymore, that doing so actually puts the organization at risk…

 Bajwa: If you have any proposal that’s going to deliver in longer than nine months, it’s going to be rejected. We need to have something that we can deliver in six to nine months but it must be pieces that can lead to a bigger solution. Anything more than six or nine months, forget it. It’s not going to happen. That’s nothing to do with us. It’s how the world works.

Bottega: I’d like to share a unique approach we’re taking at Citi that I hadn’t seen done before. We’ve bifurcated the strategic budget from the BAU budget. In other firms I had both, which meant I cannibalized those two budgets during the end of the year and at the end of the year everybody was mad at me. I didn’t satisfy the BAU activity and I didn’t make my progress on the strategic.

At Citi, and I’m actually a benefactor of it now, we have ring-fenced the strategic budget for those longer term projects, so that those projects continue to progress but parallel to that we’ve identified the BAU budget for short-term projects. Build the confidence, start to change the culture, start to change the process.

I don’t think that (risk reduction and improving quality of data) can actually ever be fixed, because I think it’s inherent in how we make money, build products and spend money on technology. – Larry Tabb CEO & Founder TABB Group

It’s the best chance I’ve seen and I think we will achieve that, addressing Larry’s point, where those multi-year projects in the past that usually ended up dying after the first year because you didn’t show any ROI, actually have a chance of succeeding now and still satisfying the business on the other side.

Serenita: But you also have some shorter-term to medium-term delivery, right?

Bottega: That’s the cross over. The shorter term going to the BAU to satisfy the business, some of which are tactical.

Bajwa: How do you get measured on the strategic side? What is the matrix that drives you?

Bottega: Every program that’s put forward goes through what we call a CEP process, or capital expenditure of program process. If it’s a multi-year program, it’ll be judged at the completion of that multi-year deliverable. There’s a separate governance structure and a separate board that we report our progress to.

Tabb: Sounds like the key to this is getting very senior business and technology management buying in on a strategic, long-term agreement.

Bottega: Absolutely. These programs, I’m happy to say, are driven from the top, which is one of the reasons I joined Citi. Senior management understands the issues and they’re actually supporting it, pressed from the top down.

Tabb: John, is this being driven by risk financial control or operations?

Bottega: Initially, operations and finance, but now we’ve got pretty much everybody else in the game.

 

You need to make decisions and implement new instruments faster.  But there’s got to be an ROI. – Craig Saint-Amour Director, Capital Markets    Industry Solutions Microsoft

Saint-Amour: To Larry’s point about senior management buy-in, I’ve spent over 30 years selling product to all of the organizations and my best customers were those who decentralized their data management decision cycle at firms where senior management were rarely involved in these issues. But times have changed, of course.

Secondly, you need to make decisions and implement new instruments faster. But there must be an ROI and as Safi said, and I agree, it has to be six months or shorter. 

Gomez: I’m intrigued by this notion of the business case versus ROI because they’re not the same thing. I can say I will reduce latency by one millisecond and bang, it’s done, but where’s the ROI on that? No, it’s a business case. Perhaps, phrasing some of these issues in terms of aligning with the business imperatives is as important as making an ROI case.

Serenita: I would agree with that but the point I’d make, it’s a point that Norm was driving home, if you have the right measurements in place, then that would help with business alignment. Because if you save that millisecond, it gets me more trade revenue.

Gomez: That’s fuzzy math.

Serenita: Nonetheless, it’s also retroactively measurable. But yes, I agree with you, it has to be aligned to business imperatives, but it also can be based in some kind of ROI.

Gomez: Key metrics.

Serenita: Yes.

Nguyen: You know, ROI is not always the case, because when you have a big system you could convince a senior manager that, rather than to have three copies of a security master, you need only one. 

When you create some of these common infrastructures on a rationalized data management layer, the incremental cost of adding the next security drops. – George Lipsker Financial Services Industry Director NA Avanade

Bajwa: With topics like compliance and business continuity and similar areas, you don’t have to make a business case or do an ROI because these are known things. Just like your latency thing. Everybody’s already translated what that means from a business point of view.

But the things that we are talking about, so-called regular reference data, we do have to make a significant business case. The special topics, yes, we can always get money for them but it’s the difficult ones where it’s not easy and that’s the business case we all need to get good at. 

Gomez: I’ve got a few areas where you can make a case that you’re aligning with business. For example, in the case of the front office, can you enhance the customer experience through your work? Can you improve customer self service? Can you get closer to the Holy Grail of a 360-degree view of the customer? These are all things that resonate with the business side.

Bajwa: Go through your topics again, slowly. Pick one of those four.

Gomez: Customer self-service.

Bajwa: Okay, yes, it’s a nice thing, a beautiful thing. But how do you turn that into…

Saint-Amour: It’s got to be measurable. How do you turn it into orders?

Bajwa…and dollars?

Lipsker: With these business cases, when you create some of these common infrastructures on a rationalized data management layer, the incremental cost of adding the next security obviously drops, so I think one of the challenges is in the financing and vendors are beginning to get more involved. One of the other things that’s been interesting is, as the push from the buy side is across a more diverse class of instruments, some of the problem space is reaching across to the business side, especially within sell-side organizations, creating if not exacerbating the problem of how to get approval and how to allocate the costs across multiple business units.