MiFID II will impose a range of new pre- and post-trade reporting requirements on European traders that will make Europe one of the most transparent markets in the world.
This new era of transparency, coupled with other regulatory and economic developments around the world, are causing major upheaval in the fixed income sector in particular.
The final session of The TRADE and ICE Data Services “Overcoming MiFID II Data Challenges” event brought together a panel of experts to answer audience submitted questions on whether the buy-side will soon be equipped with enough data to have an edge over the banks and become key players in fixed income markets.
One of the key issues audience members were concerned about was whether they would need to hire quant and data specialists in order to fully exploit the new opportunities in the bond market.
Virginie O’Shea, research director at consultancy Aite Group, said some firms had realised the need to get a grip on data.
“Our stats show 24% of the top 50 global asset managers now have a chief data officer in place, but less encouragingly, they tend to last just under two years on average [in the role], so the tenure of a chief data officer is not very long unfortunately,” she said.
It was unclear whether this rapid turnover in top data executives was due to a lack of operational support of investment, but should be concerning for the asset management industry in particular. Chief data officers in sell-side firms tend to last longer, O’Shea added, where effective data management has become a more mature function.
“It can be very hard for firms to find the right people, to handle the day-to-day crunching of big data. Banks have been leading in this area, but asset managers are much further behind,” said O’Shea.
There is also a considerable divide between how larger asset managers are reacting to the need for better data management to get ahead in the marker compared to smaller firms, according to Claudio Salinardi, managing director, Pricing and Reference Data, EMEA, ICE Data Services.
“Bigger firms are already used to archiving a lot of the information they gather to use it effectively. Buy-siders have access to public information, to research and to floor, positioning and dealer axes, they are getting increasingly sophisticated in terms of analysing this,” Salinardi explained. “Those firms already have something in place, but as highlighted today, other firms would have to look at third parties who can bring them the kind of tools they will need to take a more analytical approach.”
Jonathan Gray, head of fixed income EMEA at Liquidnet, said: “Ultimately this comes down to costs, and budgets on the buy-side are squeezed so paying £100,000 extra for data analysis that you might already be handling in-house is a big ask.”
The other key issue the panel raised was the issue of data quality, which can be a major concern for the buy-side.
“Failure rates in fixed income are incredibly high, and that is mostly due to data quality issues,” added O’Shea.
Being able to adequately assess the quality of data is one area which is likely to trouble the buy-side in the future, and may require evidencing as part of best execution requirements, highlighting the need to get on top of data issues.
Ashlin Kohler, director of EMEA fixed income market structure at Citi, gave an example: “We see cases such as two different bond issues, with different terms for example, will have the same ISIN, but trading behaviour between the two issues could be very different.”
Dealing with this sort of oddity that crops up in the fixed income market will be one of the biggest challenges facing buy-siders that hope to take a major role in the new fixed income landscape, and having the right specialist tools and personnel could make the difference between their success and failure.