Modern capital markets organizations need to master data relating to a wide range of financial instruments – including securities, derivatives, structured products and other risk factors (credit curves, volatility surfaces etc.). As part of a series of educational introductory articles, this blog provides a high-level overview to define the basic characteristics of a securities master, derivatives master, structured products master, and price master.  

What is a securities master (or security master) database?

A securities master is a repository of high-quality, validated securities data used to support systems that rely on such data. The ‘securities’ in question typically relate to equity and debt markets (as well as hybrid instruments like convertible bonds), but can also include commodities and energy markets. Equally, they can be traded either on-exchange or over-the-counter (OTC). The data within a securities master typically includes instrument identifiers (codes used to uniquely identify securities), market identifiers (where that security is listed and/or traded), corporate actions (including coupon schedules for bonds and dividend payments for equities), legal entity information (relating to the issuing organization and its capital structure), and any other data relevant for processing transactions relating to each security. The term ‘master’ represents the fact that data has typically been aggregated from multiple sources (including vendors and potentially in-house), validated, mapped and can serve as a single source of truth. This helps to address issues relating to instrument identification (given that each vendor maintains its own instrument codes/symbology) and data quality (for more information on data quality see our previous blog).

What is a derivatives master or structured products master?

Enterprise data management for capital markets organisations requires mastering data for a variety of instruments and data types. Just as a securities master offers a golden copy of data relating to securities, a derivatives master or structured products master offers a similar repository of data for those instruments (including data relevant to trading, risk management and transaction processing). Managing derivatives and structured products data can pose its own unique challenges. Derivatives markets necessitate the management of complex objects (e.g. forward curves, volatility surfaces and swaption cubes), while structured products can be made up of several components (including multiple securities and/or derivatives), resulting in unique return profiles. Being able to manage data requirements specific to those instruments requires a flexible data model and a system that thrives with managing complex data sets.

Do organizations need separate technologies for mastering data relating to securities, derivatives, structured products and other instruments?

In an ideal world, organisations should be able to rely on a single system to support enterprise data management across multiple asset classes. Even if the business is operated on a siloed basis, the only reason why enterprise data management systems should be siloed is the system in question is not adept at managing all necessary instruments and data types (this applies to many systems that are built on rigid relational database models).

What is a price master and can it be incorporated into a securities master?

A price master is a repository of validated historical price data for a particular instrument (could be a security, derivative or structured product) that is used to support systems relying on such data. Price mastering is less challenging for liquid exchange-traded instruments, where prices are widely disseminated, frequently updated and their accuracy can be relied upon. However, the pricing of OTC instruments can be relatively opaque in comparison, particularly illiquid instruments that trade infrequently. Relying on traded prices may therefore not be possible, and organisations must either rely on front-office marks, evaluated pricing services or compute model-derived prices based on proxy instruments. In the case where front office marks are used for valuation, it may be required to check these prices against another source to ensure impartiality (a process known as independent price verification).

There is no reason why a single enterprise data management system cannot support both a price master and securities master. However, such as system must be adept at managing all data types (including time series data), support a full range of vendor data inputs, be able to identify stale prices and price spikes for investigation, compute model-derived prices based on proxy instruments, and support regulatory-driven requirements such as four-eyes checks and independent price verification.