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Trading room cost management


Producing detailed and accurate trading room management reports can be a very frustrating occupation. Considering all the complexities of vendor contracts, delivery methods and entitlement rules for both data and voice services, and the mind-boggling invoices, it is easy to imagine that the service vendors have departments dedicated to drowning us all in a sea of complications and technicalities. Could it be that at last, the tide is turning? I think the answer is yes. Many managers may still feel they are swimming against the tide, but there is no doubt that the vendors are currently very interested to work with us, perhaps more so than ever before. Some of them are almost eager.

The trick is to turn these well-meaning overtures into real management benefits, and the challenge is to do this on a global scale. In this brief article I will outline some of the issues, trends and new management tools that I believe will make the difference. Lets start with Market Data services and the need for global naming conventions. Market Data managers are under increasing pressure to provide global analysis and cost reporting for their company. Without the assistance of the latest management tools, this is not an easy task. But the difficulties are further exacerbated when a vendor decides to call the same service something completely different in each of your global locations. What's worse is that the same name may well mean something completely different in each region. We need Global naming conventions - It sounds such a simple and reasonable thing to ask for doesn't it, yet it is fraught with complications.

For example: Is ASE Amsterdam Stock Exchange over Telerate? Or is it Australian Stock Exchange on Bloomberg? Or is it American, no surely that's AMX, but isn't that Amsterdam News? And so it goes on. The answer is that it depends which vendor you look at, what system or paperwork you look at it on, and where in the world you are at the time. It is not uncommon for the same vendor to have different codes for the same service in the same region with one code used on the entitlements system and something completely different on their invoice.

So how can we deal with this problem? The answer is on two fronts. The first is for you the consumers lobby the service vendors and exchanges to come up with a standard. This can be done directly or indirectly through organisations like IPUG, IIA, FISD and the MDSL User group. Remember you are the customer and you spend vast sums of money with these vendors. Many of the vendors do appreciate that the problems exist and are now actively investigating ways to provide more consistent reporting, but the pressure needs to be maintained.

The second and more immediate approach is to use purpose built management tools to deal this problem. At Market Data Services Limited we have built a Global Services Directory function into our Market Data Manager product (MDM) which deals with rationalising these naming inconsistencies for global reporting. We also have developed several "vendor interfaces" for entitlement systems and more recently for the vendor's invoices.

However, the breakthrough will come with "electronic invoicing". Since their first release in 1995, our management tools have had the ability to predict and reconcile vendor invoices. We could automatically indicate that a invoice variance existed, but the cause of the variance had to be deduced by the operator comparing reports to actual invoices. This will change with the introduction of electronic invoices. MDSL have been working with Reuters America in the trial of a secure web-based invoice management system. In London, we have similar initiatives including the production of electronic Data-feed Access Declarations (DAD reports).

I see electronic invoicing, the automatic production of DAD reports and e-commerce playing a major role in market data management over the next few years. Vendor issues only account for a small proportion of the problems we face. MDSL have now installed over 100 MDM systems around the globe, and I have had the opportunity to discuss the majority of management dilemmas with many of the world's largest financial organisations. There is a common theme, and the most common problems arise from the failure to implement firm internal management practices. Its not difficult to identify what needs to be done, but is often very hard to do it. Change management systems are required to ensure that the data we manipulate remains accurate. There is nothing worse than providing misleading and inaccurate reports. The new trend is to employ what I describe as a "message broking" system. This message broker software sits centrally, like the hub of a wheel whose spokes connect to the many other management tools within an organisation.

In theory, when a new employee joins the company, their details would be entered into the HR system where an employee number is created to uniquely identify them. The HR system would then send an update message to central message broking system. It in turn is able to pass on this message to any other external management system that needs to be kept synchronised. The same could be applied to the management of cost centre codes and other frequently changing areas.

Centralised order management is also very desirable. Remember, your company enters into a legal contract with the vendor when you order Market Data services. The contract covers not just how much you pay, or for how long, but also how you must declare your usage or entitlements to that service. You can appreciate how easy it is to get it wrong if you are not sure who has ordered what. What's more, you risk the very real chance of an audit by the vendor, who is possibly at liberty to apply costly backdated penalties for under declaration.

This leads us on to the requirement to link your entitlement systems to your cost management tools. With Stock Exchange data, just being capable of accessing an exchange means you should pay for it, regardless whether you use it or not. In fact some exchanges will not allow you to take their data unless you use a suitable entitlement tool to control access to it. You need to be able to keep your cost reporting tools in synch with your entitlement tools so that you can know the cost and forward commitments to your company of your entitlement settings.

The management of trading room voice services has a very different financial slant to it and therefore different management techniques are required. Unlike Market Data, where most of the cost is based on entitlement rather than usage, with voice, a whole lot more of the cost is based on usage. Here, again we are seeing the introduction of electronic invoices. British Telecom for example can produce a "One Bill" CD, other vendors are providing similar machine-readable formats. These need to be viewed in conjunction with the output of PBX call logging systems.

Trading room cost management is not a conjuring trick. It requires the co-operation of your traders and your vendors, change procedures, dedicated software tools and interfaces, but most of all it requires the willingness of your organisation to implement them.

Ben Mendoza |
Market Data Services Limited




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