The potential for banks to find themselves unprepared when requirements such as MiFID II and Dodd-Frank come into force is considerable. The regulators want banks to be able to reconstruct trades. But without the right tools, this can be like trying to reconstruct the grape after the champagne has been made. In order to respond quickly to the demanding and changing regulatory imperatives, banks need to ensure their trade data is high quality, accessible and searchable.
Deploying a Trade Store - an integrated ‘golden reference’ of data, stored in one place, with a single view – means it will be much easier for banks to comply with existing and forthcoming regulations. Bringing vast amounts of unstructured and structured trade data into one central repository gives a uniform, consistent and transparent record of every trade event ensuring auditors and regulators have a complete audit trail.
So, when adopting a Trade Store approach, which watchwords should be on the checklist to ensure your valuable, high-quality risk and financial data is safely aggregated?
Watchword 1: SQL/NoSQL
To SQL or NoSQL - that is the question: Both SQL and NoSQL (Not Only SQL) databases have their place in banks and financial institutions. But in today’s multi-format, content rich world where 80% of data is unstructured, will a SQL database designed for structured data bring the flexibility and agility required?
The changing nature, variety and complexity of trading data does not lend itself to the rigidity of a schema-based relational model. With each separate trading system comes a new schema requiring complex interfaces to reconcile the disparate fields. If anything changes, which of course it does, at a minimum everything needs to be tested or, more frequently, re-designed. An additional constraint with relational databases is the need to know what queries you will run in the future when you are still in the decision stage. Our experience shows that relational databases are simply not agile enough to integrate mission-critical data across many silos.
Choosing the right NoSQL database is obviously key: many NoSQL databases offer high levels of flexibility but open source variants do not also have all the enterprise-grade features required to ensure data is secure and can never be altered or lost. These features include government–grade security, elasticity, high availability, disaster recovery with advanced replication and - the next watchword on your checklist – ACID compliance.
Watchword 2: ACID
ACID (Atomicity, Consistency, Isolation, Durability) refers to a set of properties that guarantee that database transactions are processed reliably. For mission-critical applications – such as those involving financial or sensitive data – it’s imperative to have transactional consistency. The business risks for non-ACID systems are huge, unless IT takes on the highly complex, extremely resource-intensive commitment to build ACID compliance into its applications.
A leading investment bank we work with processes over 100,000 complex trades each day that typically result in about 32 million live deals in their system at any one time. Imagine the chaos that would ensue if the bank’s data was not kept 100% accurate, consistent and current?
Watchword 3: Scalability
With the Trade Store approach, not only are banks able to avoid the prospect of hefty regulatory fines, they can also reduce costs because there is no longer a need to develop and maintain multiple different systems. In the new Enterprise NoSQL world, the system is built on a commodity scale-out architecture. The result is a lower cost per trade. An additional benefit arising from the better risk management provided by the Trade Store is that regulators typically require the bank to hold less capital.
Importantly, the system can also be quickly adapted, extended and enhanced to meet changing business and regulatory requirements without redesigning schemas or ETL (Extract, Transform and Load).
Watchword 4: Semantics
The ability to aggregate high quality risk and financial data is an essential component in the new banking regulatory environment. Semantics makes it easier to discover these inferred facts and relationships, creating concepts and categories and providing context.
You can make better-informed decisions, reduce risk, and convey more accurate information by combining documents, data and linked data in a single architecture.
Watchword 5: Search
Search, like the ability to query data, is an essential element for database software; you can gather every piece of data you have, but if you can’t search it, you can’t use it.
The advantage of a database where search has been “built-in” is that it enables banks and financial institutions to turn petabytes of data stored across multiple existing systems into useful information and results. In contrast, a “bolted-on” search solution is likely to delay results, reduce the performance, accuracy and your ability to see the nuance of details in the data because the data needs to be shredded. The same issue applies to third-party search capabilities.
By searching and analysing its trade data and KPIs in new ways, another international bank we work with is deriving new business intelligence benefits such as discovering trends in how trading occurs.
Watchword 6: Bitemporal
Combining technical innovation and banking insights, one leading investment bank already working with us to deploy a Trade Store, recognised the future importance of determining what was known at any particular point in time. As a result of these discussions, a new and increasingly important feature called Bitemporal data management was developed. The Bitemporal capability allows banks to minimise risk through “tech time travel”—time stamping and rewinding documents to identify changes by looking at data as it was over the course of time without having to reload data backups. This is critical to maintain and demonstrate compliance with, for example, Dodd-Frank data analysis processes.
For banks and financial institutions, Bitemporal helps address regulation requirements, clear audits and enhance risk management and business analytics whilst reducing costs.
Banks need to act now to get their digital filing in order to avoid falling victim to massive – and wholly avoidable - regulatory fines.
While it’s true that regulators are less concerned about the process used - as long as they are able to check every piece of data (from IM logs to analytics to individual trades) when they want – an Enterprise NoSQL-based Trade Store offers a proven approach with rapid development and deployment.
To minimise risk and maintain compliance, make sure you can confidently tick off ACID, Bitemporal, NoSQL, Search, Semantics and Scalability watchwords from your database checklist.
By David Northmore, VP of EMEA, MarkLogic.