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Big Data

Building a data strategy for trading automation

Douglas Munn

08 Feb 2018

The drive towards automation in trading and investment operations is accelerating the need for quality data, with cloud-based services one way to ensure that the goals are met.

Spurred on by regulatory change and market pressures on cost, trading firms are increasingly likely to seek efficiencies from automation.

In fact, as many as nine out of 10 firms say they expect their use of automation to increase over the next two years.

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This in turn is creating a sharp focus on the accuracy, reliability and timeliness of the data underpinning their efforts, and increasingly embracing the cloud as a delivery model.

As a result, the same ratio of firms is anticipating a greater role of cloud-based data in trading applications over the same time period.

Automation progress

The findings were revealed by trading technology and data professionals at Tier 1 and Tier 2 financial institutions in a survey by the A-Team Group, in partnership with ourselves.

The study showed that 54 percent of respondents have automated at least 50 percent of their trading-related processes, with more than 15 percent of firms saying they were 75 percent – 99 percent automated.

These headline numbers, however, mask a wide variety of adoption within the firms surveyed, with some processes more likely to be automated than others.

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MiFID II challenges

This move towards automation is being partly driven by regulatory change.

Seven out of 10 firms said records retention and trade/transaction reporting — key elements of Europe’s MiFID II — are regulatory challenges impacting their trading data workflow.

Nearly two-thirds of firms added that best execution, another MiFID II requirement, was a challenge. One respondent in the run-up to the January deadline admitted, “We are struggling with all of these.”

The cost of bad data

Firms are recognizing that to achieve true trade and operations automation, a data strategy is essential.

All firms agreed that high-quality and timely data is essential to effective trading and investments automation.

However, teams are having difficulty obtaining the funding they need to acquire the data that is essential to both regulatory compliance and achieving strategic value out of trade and operations automation.

Some 93 percent of firms said securing the budget for the quality of the data they need is a challenge. This could indicate a potential disconnect within firms between strategy and execution at senior management or board level.

One piece of information that could help build a business case for better-quality data is the cost of bad data to firms. Some 29 percent of firms said they were quantifying the impact of bad data, although practice varies widely.

One firm said the cost could be as much as a half a basis point of revenue, while others look at the costs of rectifying bad data issues, such as the cost of additional services.

Cloud benefits

The cloud is becoming a very attractive solution to the challenges posed by automation for a variety of reasons.

It can be very cost-effective when compared with maintaining the necessary internal IT infrastructure, including people, hardware and real estate.

Operationally, it can remove a layer of complexity for firms because upgrades and some aspects of security are typically part of the cloud package.

It can also provide firms with increased flexibility when it comes to adding the products and services they need to enter new businesses.

Some firms have already moved aggressively into the cloud — one respondent says his firm is using the cloud “massively”.

He explains: “Our in-cloud estate is probably four times the size of our on-site estate. A lot of this is run overnight or at weekends.

“We use the cloud to compute VaR, desk risk, and will add pre-trade analytics next year. We are also looking at containerisation, and at a test/development environment.”

Future in the cloud

Other firms are hosting portions of their activities in the cloud.

Another survey respondent said his firm had put most of the execution side of the business in the cloud, while another said his firm’s disaster-recovery arrangements are in the cloud.

Even though the use of the cloud for trading automation processes is still relatively new, one-third of firms said they considered the availability of cloud-based delivery to be critical to their purchasing decisions.

These firms see the cloud as part of their future.

One data executive says: “Use of cloud-based services will increase. As our organization and cloud services mature, they will make a lot of financial sense.”

Read the white paper Feeding the Drive Toward Automation in Trading and Investment Operations for the full results and analysis of our global trends in automation survey.

To help you succeed in achieving your automation goals, our Elektron Data Platform provides an extensive range of trusted data via the cloud.

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