Doing smarter, cleaner business: The analytics potential of trade data

As more banks and broker-dealers realise the value in consolidating all of their trade reporting via a single, optimised cloud-based service, they simultaneously pave the way to use that data in new, high-impact ways.

Mike Bagguley, former COO of Barclays International, weighs up the potential for new value-added trade analytics services based on this authoritative set of up-to-the-minute trade records.

Trade reporting is a necessary and costly burden for capital markets participants: it keeps them compliant and permits them to continue doing business, and generally adds very little value to the business. Until now, that is. But, as regulators continue to push back and demand more of wholesale banks and broker-dealers – more proactive surveillance of trading conduct, for instance – the realisation is dawning that a more consolidated approach to trade recording and management could serve more than one purpose.

Mike Bagguley, former Barclays COO

In addition to slashing administrative and IT management costs, this could simultaneously create the potential for targeted analytics: of performance metrics; the cost of doing business relative to revenues; underexploited market opportunities/customer segments; and so on.

This more probing business-analytics scenario hasn’t been possible in the past, because financial institutions have lacked 360-degree visibility across their activities. Although all the supporting data will have existed somewhere, too often this has been dispersed across diverse, unconnected systems, not readily accessible or interpretable by the managers who might act on the elicited insights.

So it is an encouraging development that increased regulatory rigour around trade reporting and surveillance is necessitating a change to the way financial institutions gather, prepare and manage their trade data.

Cloud-based trade data management

It is now generally accepted across the industry that a piecemeal approach to trade data management and regulatory compliance is unsustainable. It is unaffordable and increasingly impractical. This is especially the case now that cloud-based services offer a persuasive alternative, that is much easier, cost-efficient and a futureproof way to manage – which paves the way for more holistic, repeatable and readily-automated data treatment processes, not least powerful business analytics.

Rounding up the latest research, the Bank of England’s 2019 ‘Future of Finance’ report notes that banks using cloud services have potential to reduce technology infrastructure costs by up to 50 per cent; that a quarter of major banks’ core banking activities are now cloud hosted; and a modern infrastructure is critical to an institution’s innovation potential.

For the first time, capital markets participants have an opportunity to work from a single, definitive set of trade records – across all asset classes, and as captured at the time of transaction (so the most reliable record possible). Accessible via a single central online hub, this can serve multiple different use cases, from regulatory reporting to trading and market surveillance, to in-depth business performance analysis.

At the same time firms are divesting themselves of their debilitatingly expensive sprawl of internal IT systems that has grown up across their operations. Banks and broker-dealers can start to appreciate and exploit the bigger picture emerging from all their trade activity and become smarter in the way they target their resources.

Marrying trade & customer account records

Financials need to combine trade records with other data sources.

Banks’ data-rich future should not begin and end with trade flows. However, to become better-run businesses, financial institutions need a more detailed picture across all their activities. They need to be able to combine trade records with other data sources such as revenue and profit performance data; client relationship management records; and even client electronic communications (important for comprehensive trade surveillance/detecting insider trading or market manipulation).

In retail banking and credit card provision, as indeed in many other consumer-facing industries, organisations already routinely combine transaction records with customer data for deeper analysis. This helps them to spot trends in customer activity, and determine where their most profitable business is coming from. Conversely, it can help them spot poorly performing sectors of the market and accounts which are much less profitable.

Armed with these insights, organisations are able to target their marketing and sales activities more precisely, to win more of the business they really want. They can also provide useful feedback to product development teams, to help inspire more attractive propositions for customers which the business has previously struggled to reach or convert. Such activity also aligns well with organisations’ commitments to conduct business better and improve customer outcomes.

Without equivalent capabilities, investment banks are unlikely to be able to see, at a glance, how they are performing with insurance companies in France, or whether they are performing poorly with car manufacturers in Germany, relative to the opportunity. Although, increasingly, wholesale institutions are using cloud-based software tools like Salesforce.com to collate and organise client information, they have yet to link this data with actual trade records.

Delivering outside the box

Data consolidation and inter-systems integration is crucial, and using open systems hosted in the cloud paves the way for this. With direct links between systems to enable automatic data exchange, different data sets can be combined and cross-analysed without the need to recreate or copy across data for each different use case (which raises the risk of errors being introduced). Using the cloud for data management reduces duplication and risk, while maximising the options of what institutions can do with that data. It also makes it easy for teams to access the insights they need from wherever they are in the organisation, and in the world.

ING established a global analytics unit working on data driven innovations.

With a holistic vantage point, everything from compliance and risk to business analysis and end-of-day financial reporting can all be managed effortlessly from one credible, combined data set, without huge, unwieldy and costly IT estates. As well as enabling savings which could run into millions annually, smart consolidation empowers better strategic decision-making.

It is no coincidence that ING, in the Netherlands, has established a global analytics unit, which today is working on customer intelligence, pricing, risk management, intelligent operations and innovation, as part of a plan to be increasingly data driven. It uses these capabilities internally and externally for the benefit of its wholesale banking clients.

Over time, we are likely to see more wholesale banking institutions realise the value of consolidating all of their trade data management and reporting via a single, optimised cloud-based service, so they can rationalise their out-of-control IT estates, and use their data in new, high-impact ways. The future for trade data management will be simpler, leaner, smarter. As long as market participants think laterally and holistically about how they use that data, the results should include improved business performance as well as reduced IT/data management cost and complexity.

By Mike Bagguley, former COO of Barclays International