August 12, 2011 – New regulations in the U.S. and Europe for many swaps contracts to be electronically traded and centrally cleared will require financial firms to shore up their management of data, particularly in the front-office, according to a new report from TABB Group.
The creation of swaps exchange facilities, central clearinghouses for interest-rate, credit-default and other swaps are being imposed by the Dodd-Frank Wall Street Reform Act and the European Market Infrastructure Regulation. This will drive demand for better management of data
"Managing vast quantities of data will present a challenge in the post-[Dodd-Frank] environment," wrote TABB's director of fixed-income research Kevin McPartland, in the report entitled: "Technology and Financial Reform: Data, Derivatives and Decision Making."
Securities Technology Monitor obtained a copy of the report late Thursday; it is expected to be made public shortly.
According to McPartland, market players will have to absorb and keep track of new data from trading venues, clearinghouses and swap data repositories. They will also need to access risk management systems where more robust models require a deeper look into the past. Then comes the need to migrate the data to multiple downstream consuming applications and users so that firms can analyze and act on that data.
The answer: bring the data mart concept to the front office. "An infrastructure that can pull in and normalize the most relevant data in real-time and then distribute it out to the proper endpoints will make real-time margin calculations and cross-product risk management possible," wrote McPartland. "The challenge for financial firms will be to create a best-of-breed solution based on a combination of in-house and third-party technology to solve the vast array of data challenges."
McPartland also recommended that firms rely on messaging middleware to distribute data and dispose of their traditional relationship databases for data storage and retrieval.
"Storing a string of market data ticks in a flat file might be suitable for high-frequency equity traders' back-testing strategies, but in the swaps market more sophisticated methods must be used," he wrote. "Paradigms such as MapReduce and Hadoop, those that have allowed searwch engines to fulfill your request in milliseconds, operating on massively parallel processing servers must now be used to find the truth in terabyts of swaps market data."
This story originally appeared in Securities Technology Monitor.
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