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Data Economy Financial Services Special Report

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INDEPENDENT PUBLICATION BY 02 07 2017 #0464 raconteur.net In those instances, fi rms may need to go out and search for data sources that can be used to piece a more complete picture together. AXA Investment Managers has done just that, developing its own tools in-house to support traders and clients, by aggregating fi xed-income market data. Paul Squires, global head of trading and securities fi nancing at AXA Investment Managers, says: "We wanted to create an environment where the data that our trad- ing counterparts provided us was made meaningful beyond the normal market in- teraction. We wanted to incentivise them to give us data that we would then respond to, to cultivate a better dialogue." Currencies and many stocks trade frequently, but bonds trade more infrequently, making it harder to fi nd accurate price infor- mation, and where they can be sourced or sold. Combin- ing the use of multiple data sources with human trading skills can provide a real advan- tage in trading at the right price and executing a deal optimally. "Data is a key diff erentiator in your ability to trade a bond at the right level, but if you were only looking at the data, you would hit a lot of problems," says Mr Squires. "Frankly there is no price discov- ery until you ask a counterpart to make you a price, so having a pre-trade picture of where a price should be is only part of the price discovery process. Picking up the phone and getting a fi rm price to trade at is another." There are also limits to existing datasets as Mr Squires notes that any market stress situation can make data meaningless. "For bonds, in particular, if you have, for exam- ple, fi ve million to sell and no one wants to buy them, there is no price – it's as simple as that," he says. Data is not only a technology play, al- though investing in the technology to analyse it is fundamental. Whether a re- tail bank, an investment bank or a fund manager, firms that excel are able to em- bed the idea of data as an asset in their business. This ensures data is constantly sought and gathered in such a way that it retains its value. "It is less a technical issue and defi nite- ly more a cultural issue," says Matthi- as Kröner, co-founder and chief execu- tive of German digital bank Fidor. "It's a matter of attitude what you want to do it with it. I can use data in the sense of man- aging people on the one hand, but on the other, I can use it so my customers can ac- cess data easily and get the outcome of data algorithms easily in a way that is actually helpful for their fi nancial life." ate, data scientists understand what particu- lar data does and does not represent. They have to fi nd the right datasets, check it for quality and then build a model that refl ects the reality of the market. In its recent paper, Big Data and AI Strat- egies: Machine-Learning and Alternative Data Approach to Investing, investment bank J.P. Morgan noted that new datasets are often larger in volume, with greater ve- locity and variability compared with tradi- tional datasets such as daily stock prices. Among the alternative datasets it noted were being used to guide investments, it included data generated by individuals in social media posts, product reviews, search trends and so on; data generated by business processes; and data generated by sensors. If data is a constant fl ow of rich informa- tion, it can be the equivalent of a satnav in negotiating the market. Yet in many cases, that data is more akin to the cat's eyes in the road, with a sparse and unreliable dis- tribution, not complete enough to base a decision on. of analytical framework from which the PhDs can then make heads or tails of," says Mr Kellermann. "There is still some scepti- cism whether or not that really adds value; a lot of the social media data, people have two views on. Sentiment has an impact, but closer to an event. So this sort of data is a very sophisticated animal and you have to understand multiple dimensions of it to evaluate its true value." D eep within the world of fi nance, primeval data-sniffi ng creatures are growing and evolving. Great wafts of data are drifting from your mobile phone. Every digital action sends a cloud of information out across the network. You are leaking data and, in fi nance, these signals can form a useful pic- ture of market activity. These creatures' antennae are tipped by a vast array of sensory equipment; drones fi lm- ing crop growth, vehicle activity and shop- pers on high streets; vast electronic "ears" lis- tening to the clamour of social media; a fi nger on pulsating stock market price movements. "Two laptop computers are occupying an entire fl oor which used to be full of trad- ers," says Bartt Charles Kellermann, chief executive of hedge fund consulting fi rm Global Capital Acquisition. "That trend is accelerating, the sophistication of these machines is increasing and investors see the writing on the wall. "They know that at some point they are going to convert most of their allocations to strategies that are being run by machines, because they don't have emotion, they don't get out of the wrong side of the bed. They sell when they are supposed to sell, they buy when they are supposed to buy." This does not mean that people are out of the picture. Behind every good trading sys- tem is a good data scientist. Being data liter- DAN BARNES BIG DATA CHALLENGES FOR BANKING AND FINANCIAL SERVICES INDUSTRY PROFESSIONALS WERE ASKED TO RATE THE FOLLOWING IN ORDER OF PRIORIT Y High priority Transforming data quality while preserving security Understanding how to use data to drive monetisation amid increasing regulation Understanding what big data processes should be implemented to maximise delivery Understanding how to derive benefi ts from big data 10% 20% 30% 50% 40% 60% Medium priority Low priority N/A Big Data and Analytics for Financial Services 2016 Although this publication is funded through advertising and sponsorship, all editorial is without bias and sponsored features are clearly labelled. For an upcoming schedule, partnership inquiries or feedback, please call +44 (0) 20 3877 3800 or e-mail info@raconteur.net. Raconteur is a leading publisher of special-interest content and research. Its publications and articles cover a wide range of topics, including business, fi nance, sustainabil- ity, healthcare, lifestyle and technology. Raconteur special reports are published exclusively in The Times and The Sunday Times as well as online at raconteur.net. The information contained in this publication has been obtained from sources the Proprietors believe to be correct. However, no legal liability can be accepted for any errors. No part of this publication may be reproduced without the prior consent of the Publisher. © Raconteur Media DAN BARNES Award-winning business journalist, he specialises in financial technolog y, trading and capital markets. DAVID BENADY Specialist writer on technology, marketing, advertising and media, he contributes to national newspapers and business publications. IAN FRASER Author of Shredded: Inside RBS, The Bank That Broke Britain, he was business editor at The Sunday Times in Scotland. FINBARR TOESLAND Freelance journalist, he specialises in technology, business and economic issues, and contributes to a wide range of publications. DAVEY WINDER Award-winning journalist and author, he specialises in information security, contributing to Infosecurity magazine. PUBLISHING MANAGER John Okell DIGITAL CONTENT MANAGER Tony Nguyen DESIGN Samuele Motta Grant Chapman Kellie Jerrard PRODUCTION EDITOR Benjamin Chiou MANAGING EDITOR Peter Archer DISTRIBUTED IN RESEARCH PARTNER RACONTEUR CONTRIBUTORS As technology evolves, what can be con- sidered useful data is changing. Analysis of graphics and written word as unstructured data, as opposed to the structured rows and columns of fi gures held in databases, is cre- ating new opportunities. Satellite photogra- phy and Twitter feeds are all supporting trading ideas. "It's all about unstructured data; fi nding data, cleaning it, putting it into some kind If data is a constant fl ow of rich information, it can be the equivalent of a satnav in negotiating the market Data points are winning valuable new gains for fi nance DATA ECONOMY Financial Services OVERVIEW EU REGULATIONS WILL AFFECT UK FINANCIAL FIRMS Despite Brexit new EU data protection regulations will impact the UK 03 Robo-advisers are ready to pick off clients from traditional wealth managers Automating the management of money poses diffi cult challenges to overcome Established banks can learn lessons from successful startups in disrupted sectors… DOING DEALS WITH ROBO-ADVISERS TRUSTING MACHINES WITH INVESTMENTS FIVE LESSONS BANKS STILL HAVE TO LEARN 04 06 08 Cognizant 2016 Data can bring completely new insights into investment or provide customers with a real advantage when using a service IMPACT OF DIGITAL ON BANKING AND FINANCIAL SERVICES FACTORS THAT WILL IMPACT THE INDUSTRY MOST BY 2020 70% 50% 30% 60% 40% 20% 10% Business analytics Cloud delivery services Collaborative economy Artifi cial intelligence Privacy and security concerns Digital regulation Outsourcing internal work

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