Enterprise XXXX XXXXXXXXXXXX: The Model for Reference Data Management
Executive Summary
The existing model for obtaining and utilizing XXXXXXX XXXXXXX data in large financial service enterprises is outdated, financially unsustainable in the post-2008 environment and ill-suited for the evolving demands of today's application-focused marketplace. Billions are spent collectively on largely redundant infrastructures (hardware, software, networking and personnel) offering little in competitive differentiated value to each individual firm. Exacerbating the problem is the fact that distribution, a critical component in data utilization, has never been thoughtfully addressed in the existing data management approaches. Radical change is needed.
The emergence of cloud computing, virtualized systems, Application Programming Interfaces (APIs) and other technological advances have opened the door to a disruptive solution capable of addressing these longstanding problems that continue to plague the industry. Working with a number of industry members, XXXXXXXXXXX, Inc., has spearheaded the creation of a new approach to the way market reference data is managed and utilized—XXXXXXXXXXXX XXXXXX XXXXXXXX (EXX), a zero-footprint hosted solution with emphasis on data adoption and distribution that is set to revolutionize reference data and its usage to meet both current and future demand driven by billions of end users across the globe.
In the EXX architectural model, responsibility for managing market reference data purchased from any vendor or exchange is transferred from the enterprise to an agnostic, fully-managed service provider who centrally collects, organizes, distributes and tracks data usage utilizing virtual infrastructure hosted on a cloud-based platform. The data is delivered via a catalog of shared, easy-to-use Application Programming Interfaces (APIs) offering XML, JSON, REST or SOAP interfaces, as well as support for FTP and native vendor file formats. As a result of adopting the EXX system model, the enterprise is effectively removed from the "datacenter business" and left to focus instead on its core competencies.
Fully envisioned, EXX is an industry-wide disruptive solution enabling large financial service firms to collectively mutualize their assets in order to gain an exponential leap in savings for the industry as a whole. But EXX is equally suited for large individual firms as they seek to slash costs in the post-2008 environment in which market data groups are forced to do more with less. Whether instituted on a collective or individual enterprise level, EXX delivers substantial benefits, including:
· Reduction or elimination of costly legacy system infrastructure and the ability to scale operations to meet future demand without adding additional infrastructure;
· EXX is data agnostic, eliminating vendor lock issues and allowing banks to source market reference data from any vendor without changing existing processes or disrupting downstream applications and users;
· Market reference data obtained from vendors or exchanges, as well as Enterprise Data Management (EDM) cleansed "Golden Copy" and internally-created data, is centralized into a single environment that is easily accessible by users through APIs or downloaded via a web services interface;
· Cost transparency is provided through system services controlling entitlement, tracking and user/usage reporting. Licensing, overages and duplication issues are eliminated and costs accurately allocated, transforming data from fixed to a variable cost;
· Data adoption and re-use (e.g. sourced once and used many times) is promoted across business units through the use of a rich API catalog. The result is enhanced innovation and reduced application development time-to-market;
· Business unit tools and ad hoc manual processes are easily automated to increase production, reduce errors and lower costs;
· As a fully managed service hosted in the cloud, implementation is quick and non-disruptive. There's no equipment to purchase or integrate, nor is there the need for extensive specialized training;
· The EXX model delivers a clear and immediate ROI.
Simply stated, EXX is a technology differentiator enabling users to get to the data they need in an easier, more cost-effective manner—it is essentially the plumbing that delivers exactly the data sets needed in the language or standard required, enabling developers to quickly and easily integrate reference data with in-house applications, websites or mobile apps. The EXX managed service is a radical approach that abstracts infrastructure and data management responsibilities from the enterprise, while leaving them in complete control of the data. Ultimately, the EXX model enables the enterprise to substantially cut data-related costs while future-proofing itself in terms of ability to meet evolving demand and to rapidly respond to changing business, end-user and market needs.
The Need for a New Approach
Data has been considered the lifeblood of the financial services industry throughout its 150-year history. Market data has evolved from the early days where ticker tapes reported simple trade activity to the modern-day environment where it underpins sophisticated trading models and strategies, as well as applications and services created by firms to serve a global audience of end-users.
The model long utilized throughout the industry requires that the enterprise purchase market reference data directly from an exchange or a data vendor. Reference data is typically requested on a batch file, per-security- request or ad hoc basis and delivered via terminals, files or feeds. Responsibility for managing the data (collecting, storing, normalizing and distributing) is left to the enterprise. To facilitate this model, financial service enterprises have been forced to build out and maintain complex infrastructures at great cost over the last several decades. An unintended consequence of this evolution is the fact that the banks became huge datacenters and are now among the world's largest IT companies—far astray of their core competency of providing financial services.
Although costly and fraught with inefficiencies, the approach remained in place and unchallenged for decades. The financial market crisis of 2008 created a catalyst for change. The industry was dramatically impacted, forcing banks to reexamine every aspect of their model, including how they obtain and utilize market data. Enterprises sought to drastically cut costs through the elimination of non-producing units and by identifying inefficiencies in their various operations that could be improved upon to deliver substantial savings.
In the area of market data, focus centered on the vast infrastructures that had been built up and the costs necessary to continue to operate them. Given the collective billions spent annually on maintaining and scaling infrastructure to meet demand, it became clear that the existing model was unsustainable and change was necessary. CTOs, unit heads and markets data groups were tasked with determining how automation could be used allowing them to do more with less, along with improving overall ROI. Although there has been progress made in improving efficiency and reducing costs, the industry continues to look for a long-term solution.
Clearly there is a need for radical change—a disruptive solution that will help extricate banks from the "datacenter" business and alleviate the costly responsibility of operating legacy infrastructures that have grown bloated and incapable of addressing the challenges of today's market and the evolving demand of a global audience of end-users.
Limitations of the Current Data Management Approach
CTOs, unit heads and market data teams are faced with serious cuts and the mandate they find ways to do more with less—a virtually impossible endeavor, given they remain straddled with a model that is ill- equipped to cost effectively meet current and future market requirements and demand. Key limitations of the current model include:
Exorbitant Cost and Replicated Infrastructures – The annual market-data spend among larger firms range from $10s to $100s of millions—roughly two-thirds of which is spent on infrastructure.
Collectively, the industry spends $85 billion on market data infrastructure each year. An unfortunate byproduct of the approach that has been in place for decades is the fact that the legacy infrastructures that have been created are largely replicated from bank to bank—each bank has the same commoditized market data plumbing as its peers. As a result, billions have been collectively wasted in replicated infrastructure costs, yet none enjoy the benefit of differentiated value or enhanced ROI. A related matter of note is the fact firms are effectively beholden to these legacy systems, making them vulnerable to the issue of vendor lock.
Limited Adoption and Re-Use – The lack of data adoption across business units and the failure to re-use previously sourced data are major issues for a financial enterprise. A common example is that of market data being sourced by a unit for its business purpose, but not shared with or adopted by other units (e.g. siloed), thus diminishing the value of the data to the enterprise while effectively increasing its cost. In some instances, the same data ends up being licensed and utilized in other units of the enterprise, creating overlapping license and duplicate data request issues, both of which increase the cost of the data to the enterprise. Lack of communication between units and the failure of the enterprise to track usage or to catalog and advertise available data are the primary contributing factors.
Audit Risk – Vendors routinely audit customer data usage each period to ensure users remain compliant with the license agreement governing the use of the data. Infractions to the agreement, such as excess data requests or unauthorized usage, often result in penalty or fee assessments, which can be substantial. Enterprises lacking tracking and reporting capabilities are most vulnerable to audit risk.
Moreover, the lack of an accurate usage report eliminates their ability to dispute penalties and it precludes a bank from identifying other costly data usage issues, such as a pattern of duplicated data requests.
Allocation Wars – Market data costs are often allocated to business units across the enterprise on a "fixed" versus "variable" basis when the firm lacks the ability to track and account for usage at a granular level. Not surprisingly, the lack of detailed usage reporting can give rise to allocation wars between business units. Another consequence of fixed cost allocation is that it can create a disincentive in terms of data usage within a unit, serving to suppress data adoption and stifling innovation.
Negative Bias – Vendor data comes in many forms and can require special processes/programs/tools/ knowledge (e.g. legacy FTP processes) for a user to be able work with the data—an issue that can create negative user bias in some instances. Additionally, there are issues such as ease of access to the data and the standard or language it's available in that can be important factors influencing user bias.
Limited EDM Utility – The industry took a step in the right direction with the introduction of the EDM model—a system that collects, normalizes and centralizes data into a single "Gold Copy" that can be used to support operations throughout an enterprise. Yet after spending $10s to $100s of millions in the past decade, banks utilizing EDM systems don't have one Gold Copy, but instead several, due to issues such as merger and acquisition activities. Beyond the fact that Gold Copy is largely an unachievable Holy Grail endeavor, the utility of EDM is primarily limited because it fails to address the critical issues of data adoption and distribution, as well as the aforementioned limitations detailed here.
Inability to Cost-Effectively Scale – The demands of today's market far surpass anything envisioned for the legacy systems utilized throughout the industry. Adding additional layers to legacy infrastructure further complicates an already bloated system and increases disruption vulnerabilities for downstream applications and users. Doing so can also introduce new security risks. Moreover, the issue of diminished return makes continued investment all the more prohibitive, especially in the current cost reduction environment.
Bottom line… The disparity between market requirements (current and future) and the capabilities of an outdated approach has brought the industry to a tipping point. In response, XXXXXXXXXX XXXX XXXXXXXXXXXX (EXX) has been developed and introduced to the market. Simply stated, the current model is incapable of handling what lay ahead and the time for EXX—a new, radical approach—is now at hand.
Introducing the Enterprise XXXX XXXXXXXXXXX Model
XXXXXXXXXX XXXX XXXXXXXXXXXX (EXX) is an emerging architectural model that abstracts reference data and management responsibilities from the enterprise to a zero-footprint fully managed service hosted on a cloud-based platform. Figure 1 depicts a logical view of the EXX architecture. The EXX platform is comprised of five key layers: (Insert Graphic)
Enterprise Layer - Vendor, exchange and proprietary data (real-time, reference and historical) located on the enterprise platform. The data is on boarded to the EXX managed service platform where it is stored and made available for distribution throughout the enterprise.
EDM Layer – Cleansed "Golden Copy" data from EDM service. The data is on boarded to the EXX managed service platform, where it is stored and made available for distribution throughout the enterprise.
Cloud-Onboarding Layer – Enterprise data (vendor, exchange, proprietary and EDM "Golden Copy") is easily on boarded to the cloud where it is centrally stored and made available for distribution throughout the enterprise.
Service Layer – The EXX platform service layer controlling entitlement, tracking, reporting and allocation facilities.
Universal API /Multi-Standard Distribution Layer – The distribution platform from which stored data is distributed to users via an open API catalog or bulk file distribution interface in the output language required for the application—JSON, REST/SOAP, CSV/Excel. Developers are able to quickly and easily integrate the data with in-house applications, websites or mobile apps.
Benefits of the Enterprise XXXX XXXXXXXXXXX Model
For large financial service enterprises, EXX transforms market reference data from an unsustainable cost center to that of a competitive differentiator delivering robust ROI from Day 1.
EXX enables large banks to cost-effectively collect, organize, store, distribute and fully leverage market reference data, as well as other forms of external and internally-created data, while reducing operations, infrastructure and management complexity. Market data teams are freed from supporting depreciating system assets while application developers are empowered to accelerate business utilization initiatives leveraging the market reference data for its intended use—monetization through the development of applications and services delivered across billions of computers, tablets, cars and mobile devices to a global audience of end users.
The benefits to a large bank utilizing a zero footprint, fully managed service hosted on a cloud-based platform incorporating the EXX architectural model include:
Virtualized Infrastructure – Utilizing the cloud-based infrastructure of an EXX fully managed service, an enterprise is afforded the ability to eliminate or vastly reduce industrial-grade market data infrastructure that is disproportionately expensive to maintain and inherently ill-equipped to fulfill the evolving data requirements of today's dynamic, competitive market. Moreover, by leveraging the inherent scalability and elasticity of secure cloud computing, the firm gains access to unlimited storage and the ability to quickly and cost efficiently scale operations to meet evolving demand without incurring the costs of adding more service layers and infrastructure.
Data and Vendor Agnostic – An EXX managed service effectively negates the issue of vendor lock, empowering the enterprise to select who they wish to work with—data can be obtained from any source. EXX is easily integrated with any market data system and is able to work with any type of vendor data (e.g. reference, real time and historical) in any format or language. EXX is backward compatible to work with major vendor legacy system interfaces (e.g. Bloomberg virtual legacy FTP interface), as well as scripts and programs written against those interfaces. There is no need to switch interfaces, add equipment or undergo training, thus alleviating disruptions to downstream applications and users. EXX doesn't require or obviate EDM cleansed "Gold Copy" data and is capable of handling internally created proprietary data (e.g. FX rates, messages, calendars, internal communications), providing geographical efficiencies that can be leveraged by global firms to quickly move large quantities of data across the enterprise.
Centralization – The EXX managed service, hosted on a cloud-based platform, centralizes market and reference data, as well as EDM and internal proprietary data, in a single environment that is easily accessible utilizing APIs or downloadable via an intuitive web services interface. While the EXX service handles the infrastructure and data management processes (collection, storage and distribution), the bank retains complete control over data, entitlements and usage.
Comprehensive Entitlement, Tracking and Reporting Capabilities – An EXX managed service provides cost transparency to the enterprise through system services controlling user access and usage monitoring.
User Access – Per missioning is established in accordance with license provisions to control access and ensure compliance. Access to data is managed by a scalable user entitlement system, alleviating unlicensed usage instances and associated penalties.
Usage Monitoring – Data usage is tracked and reported, providing visibility as to who is using the data, the type of data requested, frequency of requests and how/why the reference data is being utilized. Reports are made available to administrators through a dashboard, providing detailed multi-dimensional analytics on usage, performance and reliability. The tracking reports also serve as 3rd-party verification for use in vendor audits, ensuring that both bank and data vendor are on same page in terms of data requests and usage.
Added Value
· Ability to identify and eliminate overlapping licenses across the enterprise –reduced data costs.
· Ability to identify and eliminate duplicate data requests/usage across the enterprise; data is sourced once, cached, advertised and used many times – reduced data costs.
· Usage overage alerts proactively notify management when consumption levels are approached (based on data usage provisions contained in the license) – alleviates audit risk and associated usage overage penalties.
· Granular cost-allocation accounting capability that enables precise user/unit allocation - alleviates "allocation wars" between units. Cost allocation hurdles are overcome as data usage is transformed from a "fixed" to "variable" cost, spurring data adoption across the enterprise.
Optimized Innovation – A key feature of the EXX managed service is the rich API catalog. It serves to drive adoption of existing data resources across units and promotes the practice of data re-use throughout the enterprise. Business innovation is fostered and time-to-market is accelerated as application developers are able to utilize APIs (access is also available via batch file and web interface) to quickly and efficiently obtain specific data sets needed in the language or standard required (e.g. JSON, REST/SOAP, CSV/Excel) to create enterprise, legacy, office, web and mobile apps for a global audience of bank customers.
Modernized Manual Processes – Business units commonly create ad hoc tools and processes addressing a specific internal need (e.g. calendars, restricted lists, intraday FX rates created in a spreadsheet), but the "fix" often requires manual processing (e.g. user input, email distribution/notification) that can adversely impact production and can be disproportionately vulnerable to error. The EXX web service interface can be used to create apps and web pages that automate manual processes and ensure specified users get the information they need—production is increased, errors are eliminated and unit costs are reduced.
Ease of Implementation – The platform for the EXX managed service is hosted in the cloud, so there is no need for infrastructure on the part of the enterprise and users are able to maintain their same processes (the data is simply more accessible), negating the need for specialized training—technology hurdles are not an issue in implementation. The process involves due diligence on the part of the managed service provider, as well as coordination between parties to facilitate data onboarding to the platform. Thereafter a behind-the-scene test process is conducted (testing-in-parallel) to ensure that data collected to and distributed from the EXX platform is exactly the same as that provided directly from the vendor. The entire process is quick and non-disruptive to the enterprise.
Clear ROI – Reduced costs, centralization of data, increased adoption, optimized distribution, virtualization of the market data infrastructure, accelerated application development, ease of implementation and the transformation from an on premise market data environment to a hosted cloud-based fully managed service, all serve to provide immediate ROI for the enterprise.
Conclusion
The financial service industry has evolved over the past 150 years from serving a relatively small group of clients a limited number of services, to the present day financial marketplace in which the industry is tasked with delivering market-related content, applications and services across an array of mobile and web devices to a global audience of users numbering in the billions. Present day demand now exceeds that which the industry's existing market data model is capable of handling. Change is needed and the industry finds itself in search of a dynamic solution capable of cost-effectively serving current market requirements and evolving future demand.
The cloud-based XXXXXXXXXX XXXX XXXXXXXXXXXX (EXX) fully managed hosted service provides the very solution the industry is seeking—a cost effective, disruptive approach that stands to markedly alter the financial service marketplace. The EXX model will effectively abstract major financial service enterprises from the "datacenter" business and alleviate the costly responsibility of operating legacy infrastructures whose time has passed.
With its many advantages, EXX stands to radically transform market data management and become The Model for the financial services industry well into the future.
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Market Reference Data – Best Managed in the Cloud
There's no doubt that cloud computing and services have proliferated in years recent, offering tremendous benefits to enterprises across the board who've embraced the various iterations (e.g. SaaS, PaaS, IaaS)—unlimited resources on demand, significant costs savings, improved operational efficiencies, facilitated system upgrades and better back up, to name just a few.
Despite burgeoning adoption and the ongoing advancement of supporting technologies, the field remains relatively nascent and certain industries have been slow to embrace cloud solutions for myriad reasons, chief among them legitimate security concerns.
Financial service enterprises are one such group. The 2008 financial meltdown brought with it tremendous challenge for firms operating in the space—a plethora of new regulations governing security (e.g. data privacy, data and systems security, liability/risk management, and business continuity and disaster recovery), as well as the need to reevaluate every aspect of longstanding business models in their quest to downsize and cut costs in an effort to ensure survival.
Seeking to take advantage of the benefits of cloud computing, financial enterprises are now in the midst of determining whether a public, private or hybrid-cloud approach will allow them to cost effectively balance their regulatory responsibilities with their business needs and the overall mandate to deliver profits.
While that process will take time to sort through, financial enterprises stand to immediately garner substantial cost and operational benefits by engaging a new, dynamic public cloud solution capable of addressing one of their most problematic areas of operation—market reference data. Reference data is previously disclosed/publicly available, so it presents no security concerns, yet it remains a thorn in the side of the industry, collectively costing enterprises billions each year to maintain and scale legacy infrastructures that have been built up over decades to manage such data.
The XXXXXXXXXXX XXXX XXXXXXXXXXXX (EXX) architectural model, provided as a managed service hosted in the public cloud, is one avenue of cloud computing the industry can immediately embrace—a virtual "no-brainer" for today's financial service enterprise.
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EXX Enhances the Enterprise – Data Vendor Relationship
The financial service industry has undergone tremendous upheaval and all areas of operations have come under intense examination in years recent, including that of market data. The XXXXXXXXXXX XXXX XXXXXXXXXXXX (EXX) model stands to provide tremendous costs savings and benefits to the industry.
At whose expense will those benefits and savings come?
At first glance the assumption by many would be market data vendors, in which case EXX might be seen as a competitive approach and something they would use their considerable sway within the industry to forestall. Such is not the case, as market data vendors stand to reap important benefits from the wide- scale implementation of EXX, including:
· EXX provides cost transparency to banks through the utilization of entitlement, tracking and reporting services—the enterprise is able to control access, accurately measure usage, better gauge utilization efficiency and stands to reduce exposure to audit risk. While data vendors gain short-term benefit from overage and usage penalties and fees, they do so at great risk by threatening long-term relationships with their most important customers. EXX restores trust to those relationships by providing 3rd party verification that both sides can rely on—the reports serve to ensure that banks and data vendors are on same page in terms of data requests and usage.
· Banks are looking for a solution and change is inevitable—data vendors could be adversely impacted in the process. EXX negates the risk that data vendors might be forced to significantly alter their existing operations to accommodate such change, enabling them to continue delivering data in the exact manner they do now. Moreover, EXX does nothing to alter or change their data—it simply makes the data easier to get at and utilize by the enterprise.
· Vendor data is critical to the financial service industry and will become more so in the future. Utilizing the EXX model, reference and market data is more widely adopted and re-used, and it's made easier to get at and fully leverage, thus increasing the value of the data to the enterprise, while effectively reducing unit costs. This represents a Win/Win scenario—the data is cheaper to the enterprise (in addition to the tremendous savings realized by eliminating infrastructure costs), while margins for the data vendor remain largely the same.
Bottom line, as a result of EXX, existing enterprise – data vendor bonds stand to be strengthened and the issue of cost cutting that might potentially threaten such a relationship will be diminished.