Benchmark Index Data Governance

Transcription

1 Benchmark Index Data Governance Outsourcing benchmark index data production The Client The client is a Netherlands-based Buy Side organization. The organization has a considerable amount of assets under management and invests in a broad range of financial instruments including equity, fixed income, real estate and financial derivatives. The organization has many functional relationships with market data vendors, custodians, clearers and external investment managers. The Challenge As data management has not been centralized over the years, users, departments and sub-departments purchased market data as seen fit. This was the case in particular for benchmark index data, needed for portfolio performance, risk management processes and client reporting. As a result many benchmark indices were obtained via different sources. In some cases the same benchmark index was retrieved via three different sources supporting three different processes. In other cases benchmark indices were constructed based on third party terminal data retrieval, a highly non- vendor compliant process. Analysis Data Governance: Findings - No coordination nor ownership with respect to product and/or external manager benchmark indices - No on-boarding procedure, ensuring timely involvement of internal and external stakeholders - No formal overview of products and benchmark indices including benchmark index rules. - No cost overviews, hence no allocation of cost to the ultimate product(s) - No invoice reconciliation against contract - No single source of truth for data - No usage checks against contract or invoice - No centralized data quality management Data governance: Actions - Introduce benchmark index data governance as a concept, including ownership, formal processes, sources, calculation methodologies and business rules - Introduce a formal on-boarding process for new, changed or decommissioned benchmark indices - Introduce benchmark index data Cost Management - Set up of organisational entity that has responsibility for: - Importing and internal distribution of benchmark index data (interface management) - Benchmark index data control based on agreed rules ( data quality management) - Storage of processed benchmark indices (storage management) - Management and monitoring of contracts and SLA s with external data sources (data vendor management) - Monitoring of data consumption and invoices to facilitate: - cost management - vendor compliance management

2 Data Processing: operating Model Benchmark index data production 1. Production of benchmark indices is outsourced to a specialist third party 2. Outsourcing core processes such as benchmark index data production need to go through a validation process including a due dilligence. After successful conclusion a contract is signed with the data aggregator party specifying: a. benchmark indices are in scope, including originator sources b. customization responsibility c. receiving systems. 3. All details are described in a Customer File Delivery Agreement.

3 Implementation Configuration phase The project is managed by a project management team, consisting of a project manager, appointed by and representing the client organisation, a Screen business analyst and product specialists responsible for setting up the required interfacing and naming conventions for all individual benchmarks. Benchmarks are delivered in a receiving system file format and in all cases as a.csv file. The receiving service format setup is adapted for each Benchmark: Index level Per index family and as specified by the business rules, Index value local, Market cap start of day and end of daily returns local and in GBP.

4 Constituents level Depending on receiving systems up to 4 different files per benchmark index are needed, including the weights and returns, analytics, changes and prices. Acceptance Testing and Go live During the acceptance test all critical procedures are tested. After acceptance testing procedures are signed off the daily file routing is migrated to the production environment. This phase puts a strain on the existing organisation as many professionals from the front and back offices need to be involved in the proceedings. Contract administrative management Benchmark index data contracts and invoicing practices are complex. In order to manage this effectively, the organization decides to purchase and implement Screen INFOmatch benchmark indices on price level - 35 benchmark indices on constituent level - Multiple receiving applications - Benchmark index originator contracts including distribution fees - Benchmark index aggregator charges per benchmark index and charged for per type (standard or customized) Result Four months after contract signoff all systems are fed with required data sets on a daily basis. This data will be used for the following processes: - Risk: Limit monitoring and regulatory reporting such as AIFMD - Performance: Performance measurement and reporting - Order Management: Pre- trade Compliance - Reporting: Client reporting Conclusions with respect to: - Costs - Governance causes Benchmark Index licence costs to rise by over 25% - In addition: Annual Aggregator Costs - One-off project cost - Benefits - Benchmark index data production process automated - Onboarding time on average reduced from 6 to 2 weeks - 2 FTE reduction in various operations departments - Consistent benchmark data for analysis and client reporting: one single source of truth - Risk

5 - Reduced Operational Risks - Improved Vendor License Compliance - Data meeting AIFMD compliance requirements For More Information: Bob Sinnige Screen Consultants Vughterweg 47f 5211 CK 's-hertogenbosch The Netherlands Tel Cell Http [email protected]