It may seem obvious, but up till now, it has been an after-thought, understanding the origins (lineage/provenance) of the market data used by financial institutions to trade and participate in financial markets is becoming an increasingly vital consideration when developing trading, risk, and regulatory strategies. One that brings a competitive edge.
The days of a consolidated feed from a vendor like a Bloomberg, or Refinitiv, which include multiple types of data points (Contributed Prices, Indicators of Interest (IoIs), Tradable Prices, Traded Prices) from a plethora of contributors to create data volume is certainly not over, but definitely being supplanted by an urgent need to know the data’s pedigree, i.e. ‘Origin of the Data Species’
The question is why? And there are 3 fundamental answers, the first driving the second, leading to the third.
1. Regulators. Fundamental Review of the Trading Book (FRTB), and other regulations are now far more specific about what data is taken into financial institutions for risk, compliance, statutory reporting, and other purposes, and critically the regulators are now also defining the data characteristics. This means knowing all about data sources providing the information.
2. Risk and Compliance. When an event that triggers a trade or flags a risk, it is based upon the data being ingested into the application creating that event. Now responsible managers want to know if the data triggering an event comes from a trusted source, for instance, is that FX trade being based upon a rate from Barclays or the Bank of Krakatoa? Using a consolidated feed there is no way of knowing who provided the price triggering the event.
3. Defining the data sources in the market, and by pro-actively selecting preferred (and new) sources the Bank can have confidence in data provenance, apply decision tools and gain competitive advantages.
Like how Charles Darwin observed in nature, data itself is the result of an evolutionary process which is dependent upon purpose and usage, which also dynamically adapts to the environment of the market it services.
This presentation analyses the origins of data and the importance of knowing its lineage to financial market players.