All capital markets participants, from the buy-side to the sell-side to the custodians and service providers, consume massive amounts of financial reference data to feed their businesses. In some ways, financial reference data can be considered the life-blood of the firm. Without fundamental information that describes each product as it is issued, traded, settled, valued and serviced through its life, secondary capital markets would fail.
It is no surprise then that the industry spends considerable time, effort and money to amass and manage securities reference data. In a recent survey, Greenwich Associates estimated that capital markets businesses spent an average of $13.7 million on managing reference data. Annual savings upward of 25% (on average $3.5 million annually) are achievable by optimizing data sourcing.
The cost is huge and continues to grow.
One reason for this is that reference data is typically sourced from multiple vendors by multiple business units and multiple locations within a firm, leading to overlapping contracts for the same data, contracts for more data than is needed, and significant internal overhead to manage the multiplicity of intake, cleansing, persistence, and distribution activities across the firm.
The good news is that huge savings can be achieved by untangling the knot. According to Element22 partner, Methea Tep, “the average capital markets firm can reduce its run rate reference data costs between 15-25%, translating to millions in annual “hard-dollar” savings. “
Tep continues “…from my experience, savings are typically achieved in 5 areas”:
- Redundant coverage – Eliminate duplicate vendors feeds.
- Reduced coverage – Eliminate data coverage from vendors feeds that are not being used.
- Targeted purchasing – Align sourcing with data usage requirements. Changes to timing or quality requirements can reduce costs.
- Renegotiated contracts – Commit to longer term contracts, modify SLAs. Alignment of terms and conditions sourcing with business requirements. Replacement with new vendors.
- Reduced comparisons – Improve vendor coverage, completeness, quality and timeliness through better processes, procedures, and data quality rules can alleviate the need for inter-vendor comparisons and eliminate feeds used to compare data.
So with so much focus on cost management and profitability improvement across the capital markets and investment industry, why haven’t these savings been realized already?
For most firms, the potential scale of savings is unclear and the thought of executing the analysis and changes required to release these savings is daunting – expert help is recommended. The best partners to support you know reference data inside-and-out, have a proven methodology, and charge fees that are contingent on results (and not just time-and-material based).
Based on Element22’s experience and methodology for optimizing data sources, we see capital markets firms sitting on a substantial opportunity and we are comfortable working with clients on a performance fee basis.
You can get the mix right and save up to $3.5 million annually on your reference data cost.
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The opinions expressed are as of April 2016 and may change as subsequent conditions vary