Although perhaps considered the less glamorous part of the trade data spectrum, reference data actually accounts for approximately 70% of all data that needs to be captured in any financial market trade. Masu. As such, effectively navigate a transaction through the myriad of post-trade lifecycle events and workflows involved, all the way to mandatory transaction reporting to multiple global regulators, for successful completion. This is extremely important. Market data, while clearly mission-critical, represents a much smaller portion of the action.
The clue is in the name. Market data is primarily the time and price at which trades were executed. Almost every other piece of information you need to know about a trade, such as the issuer of the traded product, the trading partner, the specific identity of the traded product, the trading venue, the currency, and the company activities involved, to ensure every trade This is a critical reference data point that must be accurately captured. The parties to a transaction have exactly the same knowledge regarding the transaction itself and all subsequent actions that must accompany the transaction.
It is also important to note that for certain types of financial market instruments, such as futures and options based on futures prices, reference data is not necessarily a post-event requirement.
A rough breakdown of the reference data fields for a single futures contract transaction shows at least 160 data points that must be entered in every transaction message. Multiply this by the number of futures and options contracts traded on hundreds of exchanges and platforms (more than 30 billion annually over the past few years) and it is easy to understand the scale of the challenge for accurate reference data.
Reference data accounts for over 70% of the transaction data pie
Therefore, errors and problems with this data, whether at the source, during transmission to the end-user application, or due to other glitches in the matrix resulting in missing or corrupted data, are expected. Occasionally, this happens. The associated risks and compliance functions involved in front, middle, back office, and end-to-end transaction processing can be challenged.
There is also another major challenge when it comes to reference data, which can significantly complicate transaction reporting. This arises from the fact that there is no prescribed and standardized code to describe and identify specific trading instruments. In reality, those products may be referenced in different ways by different market intermediaries and data aggregation platforms. This means that it must be converted or “normalized” from one format to another to suit the specific descriptive “language” of the various internal and external report destinations. And it's always a moving target.
Regulators will harshly criticize companies that report incorrect information, especially as reporting of “valid but incorrect” identifiers continues to account for a significant proportion of regulatory reporting failures. With EMIR Refit and other major regulatory reporting changes planned for 2024, regulators are reminding reporting counterparties that they have a lower tolerance for errors in regulatory reporting. Expecting quick (and painful) correction, threatening to re-report and impose hefty fines.
For all these reasons, Storing the right data in the right format is an increasingly important challenge. And with his over 25 years of experience in the reference data business, we I will helpachieve this.
In the next blog we will discuss this How can institutions and financial companies ensure they get it right the first time and always?