Spending on reference data management projects in the financial services sector will continue at a high level for the next two years as firms look to make further inroads into post-trade failure rates, according to research from TowerGroup.
Matt Nelson, the TowerGroup analyst who headed the study says the majority of firms surveyed reported that they have already acquired funding for data management projects or have budgeted for them in 2006.
"Driving these projects is the industry's collective concern over the risk associated with errant or inconsistent data, the desire to reduce manual processing, and the desire of firms to centralise data administration," he says. "Given that these pressures won't subside and the frenetic pace of global regulation, TowerGroup anticipates seeing a continued high level of focus and spending on data management projects through 2008."
While failed trade rates have declined below 10% on average, says Nelson, inaccurate or inconsistent reference data and poor data management processes continue to play a significant role in DKs, accounting for nearly 60% of all failed trades.
While spending levels remain high, institutions' cost expectations for reference data management projects have decreased from US$3.5 million in 2002 to US$3.1 million in 2005, reflecting the growing maturity of data management software.
Another sign of market maturity comes in a growing interest in fully outsourced managed reference data solutions (MRDS).
"Early adopters have agreed to major MRDS deals, leading other institutions to begin assessing their own needs with an open mind toward fully outsourcing their reference data management," says Nelson. "While many unanswered questions remain about the details of this model, TowerGroup expects that more early adopters will wade into the MRDS waters, and that outcomes will be favorable from operational and economic perspectives. This will ultimately drive further activity around outsourcing."