09.16.2011

Data Issues Surround Derivatives

09.16.2011
Terry Flanagan

Migration of OTC to CCPs entails massive warehousing of data.

Critical data management issues are associated with derivatives clearing, as regulations mandate that standardized OTC transactions be centrally cleared.

The biggest data management issue in derivatives is around the migration of OTC to cleared. Financial services firms will have to manage new pieces of data and deal with new CCP formats,” Tony Scianna, executive vice president of SunGard’s capital market solutions, told Markets Media.

The major challenge for the capital markets is the requirement for new and more frequent reporting, whether for regulators, senior management, or third-party organizations such as swap data repositories.

“ Firms will need to be able to capture information in as close to real time as possible, consolidate and standardize data across disparate applications, and have unfettered, real-time access to all of the information,” Scianna said.

Also, regulatory reform will place new demands on data storage.  In particular, deeper time series will be required in order to power the risk models required by regulatory reform.

“These models will require centralized data warehouses that can pivot to a particular point in time or a time stamped cross section of data in order to audit the accuracy of the model,” said Oliver Muhr, senior vice president of SunGard’s MarketMap. “There will be an increasing need to store larger data sets on disc and to have that data available on demand.”

Other critical data management issues in derivatives and capital markets are in providing risk managers and others with a data dictionary that is rich enough to handle in-depth cross symbology, entity mapping, and best-fit pricing in order to build a single source, aggregated market data warehouse, Muhr said.

Regulatory reform has impacted the demand for data management products and services.

Firms have long recognized the need to properly manage data, but regulatory reform has changed this from a nice-to-have to a have-to-have,” Scianna said.

For example, firms can no longer wait to do a capital calculation until the end of the month. “In addition, senior management will want to know their exposure to a company, a country, or a market now, not when batch cycles finish,” Scianna said. “Those two examples alone are a major change, and it is making firms take another look at what their existing systems can and cannot do.”

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