For those in the know, data contributions are an on-going problem for the integrity of financial markets. The subject surfaced this year with the Libor scandal, which despite moving off the front pages is still very much an open issue, without a solution.
Whilst Libor grabbed the headlines, it is by no means the only benchmark that has a dubious structure and operation within the financial markets and like Libor, has commercial and consumer impacts.
The problem with the benchmarking of anything is ensuring the unimpeachable integrity of those performing it and the processes used. Anything other than honesty and a transparent process that enables anyone to understand how the benchmark has been derived,
will call into question the end results. This is something of a cause celebre for me with my own business, which creates benchmark templates that can be used to measure functionality and service, performance.
It's vital to my business that we operate a transparent and open process and highlight what is fact and what is opinion. In the world of the analyst there will always be some subjectivity in arriving at an opinion and this opinion is mainly what people
want to know.
Generally things are simply not black and white but many shades of grey and this
is important. Opinion based on fact is the basis of all research and in my world
it is this position that creates interest and opens the mind to alternative
thinking. However, within the financial markets, subjectivity in data
contributions is not warranted. Data has to be factual without external
influence or a subjective analysis.
The finance industry has evolved from an historical structure, which has incorporated new technologies and enabled a mixed bag of financial institutions to work hand in hand with commercial data vendors.
The creation of Bloomberg and development of Thomson Reuters are
manifestations of business opportunities that have direct connections to the
creation of technologies. Data communication capabilities and data standards,
developed over the last 25 years have created the present data contribution
structure in financial markets.
Like most people, I never questioned this structure, nor the operation of Libor, let alone other benchmarks, as my trust was founded on the historical presence of the structure. Like most people this trust was based upon the capability of the BBA (British
Bankers Association), the Regulators at the Bank of England and the FSA, in ensuring the integrity of the processes, the organisations and people involved. This, as we know today was a false belief based on ignorance of the actual handling of contributed data.
So where then does this leave the finance industry and all the businesses and consumers that are affected in one way or another?
It's fair to say that ‘it's all gone quiet over there', to date we have not seen much activity in the way of detailing the changes that are desperately needed to begin regaining trust.
The various enquiries born out of the Libor scandal should not take too long to arrive at a conclusion that there needs to be an independent body created or appointed, to set the benchmark and audit the process.
Any independent organisation introduced has to be from outside the present data contribution structure. The data contribution process has to be transparent and open to audit by any interested body, both domestic and international. The organisation should
be a non-profit making concern with cost recovery based on annual fees paid for by the data industry itself. May be by a levy based on data volume, there are any number of potential constructions but you get my gist.
Data contributions play a vitally important role in commerce and society. The reconstruction of a data contributions process, which should be able to provide total confidence and transparency, is too crucial to delay, so why is it taking so long?