IBOR is UBOR without Proper Data Management

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30 June 2015

Implementation of Investment Book of Record (IBOR) technology is transforming risk management in the finance industry from an end-of-day process to a more iterative intraday activity. While this is great for the business, it is only truly effective when the data is also managed in real-time. Without the correct data, IBOR becomes a useless book of record.

Have you ever experienced any of these challenges?

  • Reconciling multiple systems to produce the expected output on an intraday basis
  • Cumbersome rebookings due to wrong reference data
  • Manual exception management slowing down or blocking your STP chain

The challenge (and opportunity) of moving to real-time or near real-time risk management is compounded by an influx of new data sources to manage. Each new data source brings an opportunity to enhance awareness, but it also brings challenges with integration, trust, and management. For instance, TMX Group recently announced a risk-rating product to be released later this year. Does your firm have the ability to ingest the new unique identifiers and risk ratings without a complicated IT effort? Do your downstream systems have the ability to capitalize on the new ratings? How much effort will incorporation involve?

These issues pale in comparison to future opportunities. As risk assessment nears real-time, it also migrates much closer to the front-office. Experience tells us very few people in reference data are thinking much about the future when it comes to the data being explored by the front-office and the implications that will have on how that data gets managed.

What happens if $DE (John Deere) has Internet of Things data associated with it as a result of placing sensors on all their equipment? What about social sentiment data? What if weather data becomes tied to agricultural futures, or supply chain data and weather data become tied to the supply chain of $APPL? These are all real scenarios and there is not much consideration into the impact the growing tide of data will have on reference data architectures and the ability to leverage these datasets to effectively calculate risk.

Further, very few firms have the architectural capability to incorporate new and unique sets of data into their reference data architecture without significant involvement from technologists. Then, incorporating an effective workflow to manage the unique characteristics becomes the next in a chain of challenges.

IBOR is nearly impossible without a central database and myopic data managers are missing an opportunity to grow their domain and demonstrate success not just with risk but also with alpha generation. The migration is already happening at many firms with the addition of time series data under the umbrella of reference data management.

Further, IBOR principles are not just for buy-side firms. How many sell-side firms struggle to track risk ratings by asset class down to the account level? This capability is critical to proper suitability checks for any Anti-Money Laundering (AML) program.

Lastly, while there may be a need for a single data repository, an effective IBOR solution is going to be dependent on multiple systems working together. Is your database easy to understand and integrate? Is it cloud-capable? You may or may not be thinking about cloud today but you will definitely be thinking about it in the future. Does your vendor have consistent integration and procedures established with other dependent solution providers? These should all be core to any RFP you’re sending out.

This article originally was posted on the AIM Software blog: https://www.aimsoftware.com/research/blog/ibor-is-ubor-without-proper-data-management