When we think about the global trading environment – what do we think about? If we’re a passive investor we think about where our portfolio closed today. If we’re active investors, we think about prices, dividends, settlement instructions, risk, volatility…the list goes on and on. How we view the market is completely dependent on the correlation of our role within the market. Am I a front office execution trader? Are we analysts? Do I spend hours churning models in the quant shop? Do I ensure our firm is compliant and the regulators are happy? Am I part of the Operations teams who make sure the firm knows where it is at the close of every business day?
But no matter what our roles, we are all linked by one common denominator: DATA. Many might argue that money is the de facto lifeblood of the global markets, but I say it’s data. Just ask anyone in the sampling of roles above, if their data flow were to stop, what would happen to their piece of the world – and yours? I shudder at the thought! Data drives everything. Without data – what would that cutting edge technology run on? Without data – what would those alpha chasing quants chase? Without data – those poor compliance people would cower in the face of the regulators.
High quality data is the bread and butter of every firm that engages in the markets every day. Erroneous data or data that’s been manipulated can spell disaster for your firm and even, in some cases, put you out of business. Look at some of the recent news headlines:
“Barclays to pay $800,000 fine for U.S. data reporting errors” Reuters News, July 16, 2015
“CFTC Order ICE Futures U.S. Inc. to Pay a $3 Million Civil Monetary Penalty for recurring Data Reporting Violations” U.S. Commodity Futures Trading Commission, March 16, 2015
“Japan stocks rattled by $617bn ‘fat finger’ trading error” BBC News, October 2, 2014
Not to seem like Captain Obvious but no one ever wants a headline like that to include your firm’s name. Reputation is what drives business and subsequently the bottom line. Reputational risk is what keeps CEOs awake at night. And high quality data plays a major role in managing that risk. Data quality is a key driver and can be the difference between red and green on the status dial.
RAG: Keeping the Dashboard Dials Green
The markets have a very simple view on daily life – what’s the RAG status? RAG = Red, Amber, Green. This is an at-a-glance view of status at every level, for every task, for every event. Folks at high levels may not need to know the nitty-gritty details at any given moment, but they do want to know current state. Red, amber and green immediately translate circumstance, risk and related urgency. If you believe, as I do, that data is the life blood of any firm, – then there’s a direct correlation between the state of the data and the state of the dial.
So what do we do to make sure we’re green and equally important, how do we deal with a dial that goes red?
Let’s talk about the RED state first. This can be all out chaos in some places. Something has failed, phones are ringing, bosses are running - something is wrong that is causing blockages or failed trades, risk calculations and subsequent exposure values are off, and the errors are unknown. If you’re not feeling a little on edge at this point, you’ve never experienced this and kudos to you. Unfortunately, most of us at some point have experienced this grind. How you respond and the post mortem review and adjustments you make are the key. What are the steps to recover?
- Of course, solving the immediate issue and determining if there is additional impact is job #1
- Analyze the data: for example, are risk values wrong? Did we miss a corporate action? Was there an erroneous adjustment factor?
- Make data correction the priority: how quickly you isolate those errors and solve the issue is imperative.
- Post-mortem: After everyone has come in off the ledge, hold a post-mortem to determine what went wrong and how to prevent its recurrence. This must be done expeditiously and communicated to a wider audience. A lack of communication causes a breakdown in confidence across the organization. Control it and confidence goes green. Green is the always goal!
What about Amber? Amber just makes people take notice – no one in data ever wants to be noticed. We always want to fly under the radar. We know that silence is golden. Aged amber is even worse. For this, let’s go back to the steps to settling a red event –review the situation, do the root cause analysis, put the measures in places to prevent the issue from happening and communicate. Follow-up by monitoring the situation and measure your success. It’s only via those metrics that you’ll determine whether those steps were correct. Look at that, amber changed to green – great!
Ah, the great state of Green. Don’t be deceived by it though. Green can be fleeting – these markets we work in are not static. Don’t we know that all too well? Green needs attention, green needs to be monitored too. Long ago, there was this little hedge fund called Long Term Capital Management (LTCM). Now I wasn’t there to know for certain, but I was in the world of hedge funds at the time. And the one thing we learned from that situation: hubris kills. Yes, that’s right – don’t sit back and assume that what you’ve got in place will work each and every time and under every circumstance. As a matter of fact, assume just the opposite – which it won’t. Assume it will fail, assume something will go wrong. Look at that corporate action, oh it looks simple, it’s just an exchange change. Oh but wait, the index providers are making the changes on different days. How do you account for that? How do you communicate it so that everyone is aware and can adjust accordingly? It doesn’t have to be a complex event like the reclassification of the Google “B” shares and the corresponding symbol changes or the dreaded Royal Dutch Shell merger. You can’t know every type of event, every day but what you can do is prepare, don’t make assumptions and do your homework. The most important thing to do when you’re in a green state is stay focused. Data is a dirty business and you sometimes don’t need to go too far to find a problem. Keep pushing, keep looking, keep testing and measuring. Our systems should never rest. We are constantly reviewing the data we have and looking ahead to stay in the green.
Data at the Heart of it All
Good or bad, always document how you dealt with special situations so that the next time that situation, or another like it, comes around again – and we all know that it will - you can replay the process and repeat the success. At the heart of every data person I’ve ever met is actually a very competitive person. We may be the “data monkeys” but we’ve got chutzpah. We have something no one else has – passion for getting it right. We are the ones who figure out something that someone dreams up in some conference room to throw the markets a curve, and ensure that clients benefit because of our diligence.
Those green dials tell a story – and data is at the heart of that story. They tell everyone that at this moment in time we’re good to go. It’s only with time, transparent communication and effective execution do our clients actually believe the green.
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