Collecting post-trade data is often far more complicated and expensive than people expect it to be. Almost always, growing complexity and expense are a byproduct of increasing scale. Early on, every participant’s needs are straightforward when a company begins to trade in a new market, an emerging fund is established, and investors make their first allocations. But, as soon as you begin trading with more providers, markets, or take on additional stakeholders, the costs quickly pile up. Outlined below are the 5 hidden costs of data movement and management that we believe you need to be aware of:
1) Manual or Redundant Processes:
Integration processes that require manual efforts or have redundant processes can grow exponentially out of control. On day one, it may seem sensible to manually log in to a website or download a data file and copy it into your accounting system. But, CFOs and COOs cannot always perfectly dictate their counterparties, especially if taking on managed accounts or expanding into markets that require multiple brokers. In some cases, even using the same broker won’t ensure multiple repetitive tasks are reduced since many have completely different data locations and formats for your data based on asset class or market.
2) Data Quality:
Whether you’re aware of it or not, the quality of your data is a hidden cost that is impacting you with every trade you make. Poor quality data costs more to store, integrate, retrieve, and analyze compared to data that is free of errors. Fortunately, there do exist automated tools, like those developed by Theorem Technologies, that seek to correct data issues during the integration process to minimize the costs that can incur. These tools can be incredibly helpful since bad or error-prone data decreases efficiency while radically increasing the cost of operational and market risk.
3) Data backups
While the necessity to back up your data is undeniable, and of course, best practice, unnecessary backups should always be avoided. To avoid unnecessary backups, it is important to review your policies and procedures to ensure they include and highlight the right amount of backup data, the frequency in which you back up your data, the copies you are storing, and whether you are storing duplicate copies. It is best to implement backup solutions that protect against cyber threats without concentrating all your resources on one system.
4) Disaster Recovery
Establishing Recovery Point Objectives (RPO) and Recovery Time Objectives (RTO) for your business is critical to reducing your costs of downtime. Note that the frequency of backups will affect the RPO, and the size of the backups will affect the RTO. And of course, it is important to recognize that large data volumes take longer to restore.
Cyber-security is much more than just anti-virus software and a good password. Even small firms with just a few people must have well-defined written policies and procedures and be able to demonstrate how they are followed if they want to survive a due diligence, audit, or regulatory process. Cyber-security covers vendor management, monitoring how your data is encrypted, identifying people responsible for security and privacy, how your company reacts to threats, and much more.
Fortunately, these hidden costs can be mitigated with foresight, planning, and the proper software:
Even if your needs are not complex enough to justify automating some manual tasks, it is wise to proactively identify a pre-defined metric or trigger. For example, build a budget for adding to your operational headcount once you add a new prime/clearing broker to your provider list.
It is always cheaper to develop a comprehensive cyber-security plan from the start than to play catch up. Even if you never have sensational events like hacks, leaks, or intrusions, having to work backward can often cost many times more than just starting with the right policies to begin. It’s much cheaper to encrypt all of your data at rest now than to save it for later and be forced to reach into your universe to find and encrypt files.
There are many solutions in the market today that offer automated tools to correct data issues during your integration process. But it is imperative to find one flexible enough to fit your system. Here at Theorem, we can connect to multiple data sources such as brokers, markets, or even your own trader’s order books – no matter the format or time generated. Once normalized, Theorem can send data to any other internal or external place to enable allocations, reporting, or other processes down the line.
If you would like to discuss our Data Miller solution, or schedule a demo, drop us a line today.
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