Market & Reference Data: References

Background

The second 'Markets in Financial Instruments Directive' (MiFID II) and the 'regulation on key information documents for Packaged Retail and Insurance-based Investment Products' (PRIIPs) are complimentary regulations, both aiming for increased transparency of financial institutions - in particular when dealing with private investors. The PRIIPs regulation dictates rules for content and format of standardised product information ('Key Information Documents' – KID), to be implemented no later than 31.12.2016 in all EU countries. This applies to all packaged products, in particular derivatives, structured products, insurance products of investment type and instruments issued by special purpose entities.

The primary purpose of these regulations is increased investor protection and the rebuilding of trust in the financial markets which has been lost during the financial crisis, by applying the following measures:

  • Comprehensive pre-trade information for clients about risks, profit and overall cost of financial products, as well as customer rights and responsibilities
  • Improved comparability of similar financial products, both within one asset class and between different asset classes
  • Prevention of erroneous investments along with the associated risk

The MiFID II directive ('amending directive 2014/65/EU on markets in financial instruments') mandates increased transparency for financial markets in securities trading through extended regulation regarding portfolio management, investment advisory services and means for preventing conflict of interest. Planned for early 2018, the regulation aims to provide fair and equal competition in the financial markets, thereby increasing economic and job market growth through increased efficiency, stability and integrity of financial markets. The main aspects for this directive are:

  • Provisions for pre- and post-trading transparency
  • Establishment of so-called 'organised trading facilities' for derivative and bond trading, as well as a restriction for stock and derivatives trading to regulated trading venues, in order to fulfill the G20 obligations of the European Union
  • Easier capital markets access for SME
  • Strengthening the protection of investors through the enhancement of the rules on inducements
  • Increased regulation for trading venues and companies conducting high-frequency trading
  • Higher coordination between the individual regulatory boards and agencies

In that sense, the measures for investor protection which are part of MiFID II complement the PRIIPs regulation with reference to transparency of cost & pricing, marketing and distribution as well as product governance.

The main effect for market and reference data is an increased need for trade related product data. The central identification and classification of financial products, in particular for OTC products, is far from trivial. However, the biggest challenge so far seems to be the timely provision and handling of product data. To fulfill the regulations regarding pre- and post-trade transparency, a near-realtime alignment of all relevant data has to be established, which is a major departure from how such data is handled historically. While such data is traditionally considered 'static' for the most part, these new requirements will see a shift to increasingly frequent updates, as well as the need to align the data formats of multiple data sources and consumers, both internal and external. Eventual data deliveries to clients also have to be provided in a timely manner with minimum delays, typically in the range of 1 to at most 15 minutes.

Project summary

The project was established to provide a PRIIPs-compliant central database system for normalisation and storage of all relevant product data. Different formats of individual product data from various source systems had to be matched and stored in a common data model. In addition to this, an enhanced data model for MiFID II-compliant storage of financial product data had to be planned.

A major focus of the design was the setup of a common data bus for all data delivery systems. This component had to be able to deliver KID updates with near real-time performance, in order to match the regulation regarding pre-trade and post-trade data availability.

Nagler & Company tasks

For setting up a solution to meet these requirements, Nagler & Company first demonstrated in a case study that the setup of a given reference data system with extensive data consolidation capabilities, extended with additional upstream and downstream interfaces for connecting source and client systems, is a feasible solution. A proof of concept study based on the Asset Control AC Plus product suite was conducted. After selection of the underlying reference data system, Nagler & Company was responsible for project inception, the system architecture and design as well as the eventual implementation. In addition, Nagler & Company supported the requirements analysis and the data model design in order to bridge the gap between business and technical requirements.

Approach

Due to ongoing revisions and updates of the regulatory framework in the area of MiFID II, a final specification of the business requirements could not be provided in time for the actual implementation phase. Therefore an agile development approach was chosen. Rapid prototyping with short test and review cycles allowed for a flexible model for implementing all required system extensions and the subsequent integration into the existing system environment.

Where possible, standard functionality of the AC Plus product suite was used in order to reduce future maintenance and operational efforts. Tailored components where developed where mandated through business requirements that could not be based on existing functionality. The Asset Control AC Interface Engine components, which are primarily designed to process file batches, could be adapted to provide a subscription mechanism for near real-time product updates by source systems. AC Connect as the central data distribution component was integrated into the existing data bus architecture of the institution, which also required the development of a special Tibco adapter. Nagler & Company closely coordinated the development with the software vendor, so that issues could be overcome in a timely manner, and any extensions of standard functionality where made in line with the overall system approach.

As part of the business analysis, both the underlying data model as well as an extensive user rights and authorisation concept where in focus. Both had to be precise, complete and also easily extensible. To facilitate an ongoing alignment between business and IT departments regarding specification and design, the Nagler & Company team composition was selected specifically to cover all different aspects of the project. An experienced solutions architect with deep system knowledge as the team head was complemented by several consultants with IT focus and a solid understanding of the business aspects, so they could support the business analysis where required. A focused requirements engineering process was the foundation of a successful systems and data modeling process, the importance of which as a 'Best Practice' cannot be overstated. Fixing and implementing solutions prematurely or using shortcuts regularly leads to situations where an increasing number of workarounds are required, leading to additional implementation efforts and compromising the long-term viability of a solution. Only if requirements are tracked clearly and precisely as use cases and user stories can a design be established that is both comprehensive and fitting.

Solution

The demonstrated architecture was implemented based on the extensive experience of Nagler & Company in designing and implementing market and reference data systems, as well as the long lasting partnership with Asset Control. A central AC Plus system provides the core database functionality, while the Validation Service monitors the incoming data stream through the Tibco bus and handles import and consolidation functionality.

see illustration

The main challenges for the product database, based on specific customer requirements and on the regulatory specifications, were as follows:

  •  The requirement to integrate multiple dissimilar data sources for static data was covered by the AC Plus consolidation framework and the corresponding configuration capabilities. This was one of the core drivers for the selection of AC Plus.
  • Multi-tenancy capability for subsidiaries in several countries. Besides generally available product data, each client must have read and write access exclusively to data for which it is explicitly authorised.
  • The data model had to represent all product groups as defined through ESMA, and also has to identify unambiguously any OTC products for MiFID II. Rules for global primary keys had to be designed which allow automatic creation of such instruments upon conclusion of a business transaction. A technical solution had to implemented within AC Plus to handle primary keys of arbitrary length.
  • To facilitate near-time reporting for PRIIPs and MiFID II, the AC Plus components AC Interface Engine and AC Connect had to be extended with functionality for subscription services through a message bus.
  • In case a financial services institute sells products of another issuer (3rd party vendors), the respective KIDs have to be provided on short notice. The timely provision of such data along with the required change history still constitutes an ongoing challenge.

Client benefit

The comprehensive data model, flexible and extendable architecture and the interfaces to a central data bus allows for using the product database beyond the pure MiFID and PRIIPs requirements as a group-wide strategic target platform for storing and managing reference data.

Project summary

Setup and extension of a market and reference database system based on Asset Control for IPV and Value at Risk calculations, including integration into the existing system and software environment.

Nagler & Company tasks

Nagler & Company developed a multitude of components for the integration of various data sources and consumers. The complete software development cycle, from specification to implementation and tests until the final go-live and integration of new components into daily operations, were part of the responsibilities. Consolidation of input data from several internal and external sources, optimization of workflows and processes within the Asset Control system, analysis and reporting of audit trail information and the setup of interfaces for data exchange with third party systems and departments like Front Office, Scenario Engine or R, were all part of the challenge. In addition, dedicated trainings for internal staff were performed by Nagler & Company to provide both basic and specialized knowledge required for operating the system.

Approach

All requirements were specified and implemented in short development cycles and in close coordination with the internal business and IT departments. Standard interfaces were used as much as possible in order to minimize the requirements for maintenance and operations. When business requirements demanded more flexible solutions which were not covered by the default functionality of the system, dedicated components were implemented and integrated into the system. For example, various third party systems like Calypso were provided with API modules which allowed a direct connection to Asset Control, enabling it to perform direct queries from the Front Office system into the market database without the potential delays and additional overhead of a batch-based data delivery.

Close contact with all involved parties during the development period and specific and targeted training sessions ensured a shortened training period and a seamless integration of new components into the production environment.

Solution

In cases where standard Asset Control functionality did not cover all business requirements, development of components was primarily done in Java and Perl languages, supplemented by Shell scripts and the Asset Control-specific scripting language Formula Engine for integration into the existing system environment. Test and release cycles were standardized through the use of Maven. The use of existing systems and technologies was crucial for providing additional synergies and reduce additional efforts as much as possible.

Client benefit

Using an integrated and holistic approach based on technical and business expertise, an optimal solution for the setup of the market data infrastructure could be provided. The implementation ensures performance and stability while lowering efforts for maintenance and daily operations.

Project summary

The market data infrastructure of the client required streamlining to cut costs and optimize available resources. The real-time market data supply was migrated from Reuters Selectfeed and Bloomberg BPipe-on-Demand (BPOD) to the new Bloomberg data feed service, Managed BPipe. No standard managed BPipe interface existed for Asset Control, so Nagler & Company designed and implemented an adapter, and configured the existing processes and data streams to handle the new source.

>>> see illustration

Nagler & Company tasks

Design, Implementation, Testing and Operations

Approach

Our procedural strategy Business Driven Technology starts with business needs as the basis for technical design. Our team's combined business understanding and technical know-how enabled us to reconcile the functional requirements, infrastructure landscape and technical constraints of the Asset Controland Managed BPipe systems.

Solution

The interface to managed BPipe builds a connection using the Bloomberg Java API. This connection is maintained throughout market database's uptime and subscribes to real-time data twice daily. To enhance reliability, there are two co-located interface instances that run simultaneously and execute a seamless failover in the event of problem on one side. In addition, all incoming data is saved for 24 hours to ensure that no ticks are lost in the event of connection problems with Asset Control.

Client benefit

Market data provision was optimized through the implementation of the new interface. The concentration on a single data provider allowed for significant direct financial savings. Also, unification and simplification of the system's technology reduced operational risk and improved both stability and maintainability.

Project summary

Setup, operation and extension of a central market and reference database, based on Asset Control, incorporating multiple data vendors and downstream systems.

Nagler & Company tasks

For more than ten years, Nagler & Company has been responsible for all market data maintenance activities, including:

  • Conception, design, operation and extension of the central market database for price and reference data for traders. The data system is based on AC plus, with interfaces to various data providers, as well as peripheral and subscriber systems.
  • Provisioning of real-time tick data, derivative market data market data (risk factors, correlations, implied volatilities, etc.) and index composition.
  • Integration of low-latency systems KDB+ systems with Asset Control.
  • In-house development of components for tracking corporate actions, calculating correlation mapping of instrument IDs or index component analysis


Approach

One-stop full-service provider

Solution

The illustration shows the integrated architecture based on the Asset Control market database, extended by in-house peripheral systems.

see illustration

Client benefit

With the complete takeover of support and development of the system, Nagler & Company was able to guarantee dependable service and data quality for years. The one-stop full service solution enabled us to add value throughout the market data lifecycle, from business concept and technical design to implementation, daily operation, and support. We focus on customer usability, which we accomplish through fast reaction times, high availability and short implementation cycles.

Project summary

Development of a market data system based on MS-SQL Server for the market risk control group, to replace the existing in-house system. Integration of the new system into a parallel new infrastructure for measuring equities' and equity derivatives' market risk.

Nagler & Company tasks

Nagler & Company facilitated the business and technical implementation phase, and various extensions after the new system's introduction:

  • Specification of the data model
  • Specification and partial implementation of the interface (SQL, .NET, COM)
  • Specification and partial implementation of the business processing in the database system
  • Specification and partial implementation of peripheral programs, e.g. integration of market data sources and market data derivations
  • Training internal employees


Approach

The in-house development of the system allowed for a solution individually tailored to both the client's immediate business requirements, and the need for sound technical flexibility and extensibility for future development.

Solution

  • Market data storage in a relational database (MS-SQL Server)
  • Read and write processes encapsulated as stored procedures
  • Windows-service architecture with .NET and COM interfaces
  • Connection to external databases using SQL Server Service Broker
  • Automated processing of data from interfacing databases


Client benefit

By choosing the right technology, the old market data infrastructure could be replaced with one offering improved stability and data reliability. The project team's combined business understanding and technical know-how enabled an optimal, direct realization of the business requirements, and a frictionless deployment.

Florian Eberlein Nagler & Company
Contact Person

Florian Eberlein

Location Frankfurt am Main

+49 (069) 9055380

E-Mail

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