Obtaining Utility from a Utility

The market would have benefited from more public debate about the reference data utility proposal, says Xenomorph's Brian Sentance.

The first two results I received from typing "define: utility" into Google seem apt when considering the implications of having a reference data utility for the financial markets:

"A company that performs a public service; subject to government regulation"
"The quality of being of practical use"

In terms of the first definition, there is plenty of political support for anything that could perform a public service and protect the electorate from excesses and mismanagement by the financial markets. ‘Subject to government regulation' fits too, although maybe unusually for a utility it will be the consumers that may find themselves subject to more regulation rather than the utility itself. On the second definition—"the quality of being of practical use"—I think the public debate has been so far one-way and surprisingly limited.

Supporters of the reference data utility concept have highlighted how the industry needs a reference data utility, putting forward the following motivations:

• Data management must be automated, since data volumes now prohibit manual processing
• A single data dialect is needed, since data transformation can be slow, costly and risky
• Data management must be improved to reduce the riskiness of the financial markets
• Financial markets need more data transparency to enable greater understanding of risk
• Regulators cannot manage systemic risk without greater availability of data
• Data, down to a micro level, is needed for large-scale computing analysis of systemic risk

The financial community seems to be convinced already about the first point above. The data transformation issue is also very valid: if a data utility could provide a de facto single interface to all reference data needs, it would simplify many data integration projects, particularly if it was also adopted by the diverse trading and risk management system vendors that consume reference data. The latter four points seem to collapse down into one: regulators need access to all financial markets data from all institutions, from the macro down to the micro level.

Yet, standing back and taking a good look at the industry motivations again, they simply imply the more general aim of "why we need better industry-level data management." I think we can all agree upon this, and organizations that have supported the set-up of a utility have done a great job of bringing this to the attention of politicians and regulators.

What I think needs more public debate is that, while supporting the laudable aim of better industry-level data management, it seems as though many have automatically jumped to the conclusion that the industry needs a reference data utility.

The question is whether there is a need to have one single infrastructure, or if data vendors could play a part in fixing the same problems a reference data utility would address. Bloomberg, Thomson Reuters, SIX Telekurs, Interactive Data, Markit and many other data vendors already have infrastructures, experience and resources to meet the challenges related to maintaining the data.

Supporters of the reference data utility concept have also called for data standards. But the standards debate has been going on for years. This is nothing new, and something that the industry has not been good at. Moreover, what will make a regulator better qualified or more successful at defining data standards? For example, some propose that ISINs should be the standard security identifier for such a utility, but in my opinion this demonstrates that such proponents are familiar only with fixed-income markets and less familiar with markets such as equities and derivatives.
Still, the key point is that all of us in the data management market are in favour of better industry-level data management, particularly given that high-quality data is the foundation for any good decision-making—from a desk trader to a national regulator.

However, I wish there was more public debate about the reference data utility proposal. It would be interesting to hear more practitioners discussing alternatives, such as mandating the existing data vendors to collectively implement and provide data standards and standardized services. Some of the other options have not seemed to be considered, or at least debated in public.

Given the lack of debate and the high-level contact between international regulators and politicians, it looks increasingly likely we will have a reference data utility. So here's hoping the coming utility can exhibit "the quality of being of practical use."

Click here to view the article on the Inside Reference Data website.