Over the past decade, access to liquidity - and therefore execution performance - for asset managers has become increasingly complex. Data is at the heart of this transformation. It enables better anticipation of execution decisions in a complex environment, but also allows the traceability of transactions and transparent communication with investors and regulators.
Data: A major variable in the “acquisition cost” for accessing liquidity
Data is a major concern for accessing liquidity, particularly in view of the prospect of new trading venues to be covered. The acquisition cost (i.e. technical and operational setup, knowledge of the ecosystem, analysis and decision-making capacity, etc.) to meet these requirements has become a substantial constraint for asset managers. It mainly comprises three facets.
First, the change initiated by MIFID has led to a growing fragmentation of liquidity, requiring a real specialisation of people, but also of marketplaces. Data and its analysis play an essential role in identifying opportunities in this very broad field of marketplaces and their specialisation requires greater access to and management of data to cover the increased scope of liquidity.
Direct management of the execution policy algorithms by asset managers makes it possible to avoid some of the execution costs charged by counterparties. This direct management can also be an important performance factor, allowing the comparison of several service providers through the algorithms they propose to choose the one best suited to the investment decision. But in any case, the acquisition cost remains high, mainly due to the necessary understanding of the environment and the various players that make up the global offer. In addition, the comparison of these algorithms can likewise only be done through tools that allow for good integration and management of the associated data, all in an automatic manner and as it happens.
Finally, automation is a real challenge for execution and numerous tools exist, notably proposing automatic and perfectly documented RFQs.1 Historically confined to vanilla products, these offerings have broadened their scope, thus allowing brokerage optimisation. However, these platforms require real-time data feeds, which come at a cost that might not be offset by the savings generated by automation. Nevertheless, for this type of activity, the pooling of resources, including data, can represent real added value for the stakeholders.
In conclusion, access to liquidity is a complex, multi-dimensional issue. The high degree of automation of transactions, the acceleration of processing speeds on the markets and the growing need for traceability require increasingly rapid and broad access to data in order to make the right execution decision in full knowledge of the facts and without delay.
Data: An essential component of the quality of management and reporting
As with access to liquidity, the need for transparency has recently evolved significantly. Whereas a few years ago weekly or monthly activity reports were the norm, stakeholders are increasingly demanding dynamic and interactive activity monitoring tools including dashboards displaying details and audit trails, order by order. This depth of analysis requires IT databases capable of storing the relevant data with the right referencing and depth.
Analysis requests are also increasingly specific about the execution methods used and their relevance to the stated performance objective. To this end, the use of data in post-execution analysis allows the impact of execution strategies on the market to be monitored by execution venue, and these projections are a valuable decision-making aid through analysis of the existing situation. Here again, only a perfect combination of tools and data management can provide the right depth of analysis.
On the regulatory front, order publication times are getting shorter and shorter, and the regulator is increasingly attentive to the quality of the data submitted, with its data scientists regularly testing the quality of the repository and the accuracy of the data through audits. To ensure the reliability of reported data, asset managers increasingly need to deploy data control teams to ensure that the data is complete and qualitative in relation to the needs expressed.
Optimising the acquisition cost via a pooled dealing desk
Whether it is a question of liquidity access, execution performance or activity monitoring, the dominant factor in the acquisition cost is the tools-data couple, and this cost is all the higher as the tools involved become more powerful and specialised.
New operating models, such as open architecture data management, allow a large amount of information to be aggregated, but its proper exploitation requires highly specialised resources and know-how, as well as significant investments not directly related to asset management... but which are nonetheless essential, as execution performance is a fundamental component of added value.
This is the purpose of I-DEAL, SGSS’ outsourced dealing desk, which enables resources and data to be shared, thanks to the pooling of resources and the provision of an experienced team of trading specialists.
Based on an open architecture model, I-DEAL adapts to clients’ selection policies and guarantees best execution. All operations are traced, and the tools are interfaced with those of clients to allow perfect data restitution so that it can then be used by clients' management, risk management or internal control. I-DEAL also offers a permanent technical watch to ensure that it is always at the cutting edge in terms of IT developments.
I-DEAL's robust setup is also an asset in terms of transparency vis-à-vis corporate management and the regulator, if necessary, due to its steering and reporting capabilities that are always in line with regulatory developments and market expectations.
This unique approach makes I-DEAL the right outsourced dealing and execution platform to meet the data flexibility needs of investment firms.
Click here to know more about SGSS’ I-DEAL solution.
By Gildas Le Treut, Co-head of Coverage, Marketing and Solutions, Societe Generale Securities Services
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