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OTC Derivatives Spark Need for Buy-side Firms to Revise Data Management Strategies, Finds GoldenSource Survey

The rapid take-up of OTC derivatives and associated business risk, is causing buy-side firms to reevaluate strategies, even those with well established data practices, according to an international survey commissioned by GoldenSource Corporation. The research, carried out by A-Team Group, studied trends among buy-side firms in managing instrument data and found that almost eighty percent of asset managers are reviewing their data management strategies due to complex products.

When asked their motivation for re-evaluating data management strategies, 63 percent of the respondents cited growth/scalability as a top priority. This ties in with firms’ desire to continue investing in complex products while ensuring they’re supported by solid data management practices. Front-to-back office consistency in data handling was ranked as a top priority by 54 percent of respondents, and better management of perceived risk was top priority for 46 percent.

Other key findings of the report include:

• The widespread use of reference data systems – 96 percent of buy-side firms have connected their accounting systems to reference data systems, or plan to, in order to get a better picture of exposure;

• Need for improved operational efficiency and risk management - almost three-quarters of respondents cited operational efficiency and 68 percent listed business risk as key factors for motivating buy-side firms to centralize data processes;

• The growth in popularity of third-party data management - with 74 percent of respondents saying they use or plan to use third-party data management;

• Excel is still a fall-back for managing derivatives – 64 percent of respondents said their firms still use Excel to manage OTC derivatives on an ad hoc basis, and 44 percent use it systematically for some applications;

“Before it was ‘know your client,’ now it’s ‘know your data’,” said Neil Edelstein, vice president of product solutions at GoldenSource. “This research has highlighted three main drivers compelling buy-side firms to re-evaluate their data management strategies: the continued growth in OTC derivatives and the data challenges that brings; the need for more proactive risk management; and a desire for centralized data management to ensure consistency. The sheer volume of data associated with OTC derivatives and the fact that much of it is stored in stand-alone Excel spreadsheets with no centralized data model further compounds the risk factor – and the need for firms to rethink their strategies.”

To produce the report A-Team Group held structured discussion with a global sample of senior individuals involved in reference data management at buy-side firms. Geographically, the survey sampled respondents from around the globe, in particular from the U.S., U.K. and mainland Europe (with an emphasis on The Netherlands and Belgium) with the majority of respondents selected from the top 100 asset management firms in the designated regions.