Content, Not Form

Symbology tunnel

Trading Systems Interoperability in Exchange Traded Markets

One of the big wins of tougher procurement regimes has been cutting multiple paid for sources of same data content, including symbology, which in turn has for many firms driven major IT programmes along a single repository route with application request retrieve architecture and with a single view of data across the enterprise.  Buying off the shelf enterprise data management solutions or building your own one will always be a result of a firm’s due diligence in this area but both routes are still very dependent on quality data content that is fit for purpose and ideally continually tested to remain so within a community data cleansing model.

So how can users be assured of quality data?  Unique instrument standards do exist it is just that there are multiple instances of uniqueness and every major firm who is actively participating in trading will, in the majority of cases, have their own primary key or unique identifier that all other symbols must map back to, rather unsurprisingly, as it is the core of classic database design and management.  However, the gap between the coal face of the practitioner dealing with day to day trade breaks and the strategic view of fundamental decision making can more readily co-exist in symbology as generally people “get it”;   the visualisation of a mapping or lookup table is in the data management DNA at all levels.  However, too little knowledge of instrument identifiers at a traded level can trip up even the most ardent proponent of opening up symbology for all systems providers.

The challenge the industry faces therefore, is sourcing or maintaining fit for purpose symbology at the point of use across all parts of the trading lifecycle from pre-trade risk to execution, clearing, settlement, regulatory reporting and portfolio management.  Major advances have been made in full cross-asset and full lifecycle capability of vendor or in-house solutions including cross-asset collateralisation and margining to minimise capital requirements.  There is still a long way to go but fundamental to the working efficiency of these solutions is the point to point identification of a trade’s constituent attributes and this, in the main, is achieved through appropriate symbology.  The result is of course the rather paradoxically phrased highly integrated operability of disparate systems or interoperability in common parlance.  Contextual symbology is therefore the objective and this has to satisfy key questions of; Will it work? Where can I source it? How much does it cost?  Are there usage restrictions?

There are thin analogies that can be made with the computer industry where the opening up of operating standards has led to a large community of application developers who compete head to head on the quality of their product, being the point of decision rather than the underlying constraint of whether or not it will work on a particular platform.  This is where the financial industry has been heading for many years and as many prime brokers will attest, interoperability gains from fit for purpose symbology has led directly to client wins and business growth.  The interoperability of major vendor products has been tackled and has been achieved at a technical level but not without restrictive practice challenges being made as a means to reduce or set lower benchmark costs for what is an essential industry component to provide trading and operational efficiency.  This sometimes painful journey has led to some core changes to both the perception and reality of how market participants define competitive advantage and some startling and fundamental policy changes from the big vendors.

Bloomberg’s Open Symbology initiative (BSYM) and the company’s worldwide PR campaign to back it up captured all the positive press, whereas Thomson Reuters’ engagement with the EU Competition Commission a decade ago drew much pent up angst from the market who has criticised it for abusing its dominant symbology position in post-trade operations.  BSYM can be used to identify tradable products and therefore has a use; however, it is not necessarily fit for purpose in all contexts of usage, especially where certain attributes of Bloomberg’s Securities Master file are required to fulfil applied symbology in a live trading environment.  This is no surprise therefore and should be expected of any company in order to secure its more valuable content, notably price data in this instance.  Thomson Reuters’s Transaction Processing Licence addresses RIC usage in both pre- and post-trade processing.  It retains the intrinsic value of its RIC in its front office product licences but, as this symbology connects to its valuable price content, this is not unexpected and commercially justifiable.  The prospect of further interoperability from like minded vendors, who may still licence their symbology to legally preserve their IP rights but with no or low fees, will allow a back to basics approach where products are sold based on their merits and this will fuel a highly competitive market and deliver more choice to both sell side and buy side participants.

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