RD e-book Blog 1 website.png

Reference data: Oiling the wheels of financial transaction processing

This blog highlights a discussion point from our comprehensive eBook: “Reference Data: The Essential Guide”.

In terms of oiling the wheels of financial transaction processing, reference data plays an increasingly critical role in the smooth running of global financial markets. Touching on every part of the transaction lifecycle, it is estimated to account for up to 70% of the data required to execute and settle financial transactions.

Reference data is the essential information that underpins all financial transactions, providing the DNA or ‘official’ identification of the traded instrument itself, and the names and location of the parties involved. It is the important ‘finer detail’ that identifies and specifies the asset classes, products, counterparties and other information associated with a financial transaction.

The long-and-the-short-of-it is that wrongly labelled products cause transaction failures; in the worst case scenarios, feeding faulty data into ‘the system’ can result in more devastating systemic failure, as the outage of UK’s Air Traffic Control system so aptly demonstrated. Beyond failed trades, in terms of operational risk, back office recording and reporting through a myriad internal and external process workflows are essential links in an efficient transaction lifecycle. As such, there are operational, financial, commercial and regulatory risks associated with poor reference data management.

Better data, better data management

  • Improve operational efficiency, customer service and business relationships

  • Reduce business costs and risk exposures

  • Enhance competitive offerings in a busy marketplace

  • Avoid the pain of regulatory non-compliance

If follows, then, that robust reference data management supports effective risk management. Credit risk exposure, for example, is linked directly to accurate counterparty information; reliable product classification facilitates better management of market, settlement and reporting risk, and operational risk is now a mandated element of a regulated firm’s overall risk calculations and associated capital adequacy provisions.

At the same time, banks, institutions and buy side firms operate in a highly competitive environment, with enormous capital and resource pressures, in a challenging economy and associated market volatility, rising interest rates, high inflation and overall, a very much higher cost of doing business.

As the number of financial markets, assets, issuers, products and participants continues to grow - potentially by 100 times in the next decade - with an associated increase in data volumes and complexities, the impact of reference data on financial markets will be even more important in the years to come.

To find out more about reference data trends and challenges, download our comprehensive eBook “Reference Data: The Essential Guide”.

Share

Reference Data: The Essential Guide

As the number of financial markets, assets, issuers, products and participants continues to grow, our latest guide explores the increasing impact of reference data on financial markets.

Related Insights

  1. Article
    In the continuing absence of single, global identification and transaction messaging standards, the challenges of managing reference data are many and varied, since every data point may be subject to multiple interpretations - and indeed uses - in different contexts.
  2. Article
    It is a truth universally acknowledged that faulty reference data is, today, one of the key contributors to regulatory reporting failures.
  3. Article
    The use of reference data is not always an ‘after the event’ activity for reporting purposes. Futures and options reference data in particular is not only instrumental but also mission critical in price discovery for forward-priced transactions. As such, any problem with this data, whether at source , in its delivery to an end user application, or because of a ‘glitch in the matrix’ on the end user side , can cause major headaches.