Next Generation Analytics

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Next Generation Analytics sponsored by SAP

Next Generation Analytics sponsored by SAP

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  • 1. >> Whitepaper Next generation data analytics August 2013 Sell Side
  • 2. 2 WatersTechnology I whitepaper l sponsored by SAP Next generation data analytics Contents Executive summary............................................................................................................................................... p 3 Delving into data........................................................................................................................................................... p 4 New technology.............................................................................................................................................................. p 6 Challenges..................................................................................................................................................................................... p 8 Solutions............................................................................................................................................................................................. p 9 Conclusion.................................................................................................................................................................................... p 10 About SAP....................................................................................................................................................................................... p 10 © This document is property of Incisive Media. Reproduction and distribution of this publication in any form without prior written permission is forbidden.
  • 3. Next generation data analytics WatersTechnology I whitepaper l sponsored by SAP 3 Executive summary The explosion of data that is now available to financial organisations has necessitated the development of new technology to collect, store and analyse the information that flows into these companies 24 hours a day, seven days a week. Recent innovations with applications for capital markets include cloud-based services and in-memory data management. Both can help manage the influx of data available to participants in capital markets. The cloud can enable efficient, cost-effective data warehousing and analytics on an enormous scale, but can also shrink to fit the needs of even the smallest business. In-memory data management provides the ability to analyse large amounts of fast-changing data in real-time, boosting the operating speed and power of the trading and risk management functions of organisations within the capital markets. But are financial firms developing strategies that will take full advantage of these new technologies? How can a company’s current data infrastructure be adapted to take advantage of the analytical power that such technology can provide? WatersTechnology conducted an exclusive survey of more than 160 senior data management executives in June and July of 2013. Participants hailed from a range of companies across the world, including large banks and financial organisations such as Citigroup, Bank of America Merrill Lynch and ICAP, as well as smaller concerns such as technology consultancies, trading firms and independent financial advisors. The aim of the survey was to discover how innovations such as cloud computing and in-memory technology can support new ventures in trading technology. Are companies in the capital markets currently making use of this type of technology and how might their use of it evolve to augment future trading capabilities? What are the current and future technology needs of financial companies and how can the wealth of data available in the market today be gathered and analyzed to enhance the trading operations of companies in the capital markets? The results of the survey show that organisations in the capital markets see the ability to access a variety of data as critical to the development of trading systems. As more data is created for companies to track, store and analyse, many have developed the infrastructure to support these activities, often a mixture of proprietary and off-the-shelf systems. However, tools such as sentiment and text data analytics have typically not yet been incorporated into these systems, according to the survey. Many firms are aware of the benefits that technological innovations such as in- memory data management or the cloud can bring to financial organisations. The survey shows that some organisations have already developed strategies for cloud-based infrastructure and those that have not are certainly interested in the possibilities these technologies can provide. Respondents also highlighted other vendor solutions such as in-memory data management as a likely future component of their trading systems. But there are often barriers to immediate implementation within these companies. Finding the necessary resources can be difficult, particularly for those firms that already have fully functioning systems and processes in place. Budgetary and staffing constraints often conspire to slow the development of a company’s data analytics strategy, according to some respondents to the survey. However, financial firms are certainly intrigued by these developments and this interest should translate
  • 4. 4 WatersTechnology I whitepaper l sponsored by SAP Next generation data analytics into action further down the line, allowing capital markets organisations to develop smarter systems for data analytics. Delving into data Capital markets today are faced with a deluge of data. Whether as a result of increased regulatory checks and balances, new sources of market data, or the ever-growing world of social media, businesses increasingly need to be able to sift through mountains of information to analyse and act upon the patterns therein. In-memory data management and cloud technology are two of the major solutions that have been developed to support this need. Such platforms offer chief information officers and other business line managers to store large swathes of information and benefit from speedy analysis of this data to support risk management and trading decisions. However, for every financial firm that has already embraced such technology for these ends, many more are intrigued but unwilling or unable to take their data infrastructure to the next level. The ability to access a variety of data is the most crucial aim in developing future trading applications, according to almost 40.7% of the respondents to an exclusive survey conducted by WatersTechnology in June and July 2013 (see Figure 1). The survey polled senior data management executives from capital markets organisations across the world about data analytics. Figure 1: What is more important to your company when it comes to developing future trading applications? Data infrastructure today - and indeed in the future - must provide financial organisations with the ability to slice and dice vital market information in real- time. These organisations require superior analytical tools that can be applied quickly and efficiently, even as the needs of companies operating in the fast- paced global financial markets continue to change. One of the respondents to the WatersTechnology survey, a New York-based managing director at an applications development and implementation company, points out that speed has always been the minimum entry criteria required to operate in the capital markets. However, Latency (23.5%) Adding more complex trading strategies (29.6%) Other (please specify) (6.2%) Variety of data: structured or unstructured (40.7%)
  • 5. Next generation data analytics WatersTechnology I whitepaper l sponsored by SAP 5 he adds that the ability to collect, store and process data quickly and efficiently has become key to success. “Whether you’re on a trading desk or in wealth management, if you do any type of clearing or settlement, you’ve got to be able to process enormous amounts of data quickly,” he says, adding that players in capital markets need systems that can provide better predictive insight as well as tools for regulatory compliance and response. Regulation has recently created a greater need for the ability to store, sift through and evaluate large amounts of data quickly. New pieces of legislation enacted in the United States and Europe since the 2008 global financial crisis have intensified reporting responsibilities in a bid to make financial markets more transparent. With the US Dodd-Frank Wall Street Reform and Consumer Protection Act, a company’s level of responsibility depends on its activities. But most financial market participants are expected to comply to a certain extent by providing regulators with information about the transactions in which they participate. The difference tends to depend on the level of trading activity, meaning that the ability to monitor activity across a company is central to compliance efforts. “In the area of regulatory compliance, we’re seeing demand for tools that can provide more than just end of day clearing and settlement positions,” says the managing director of the applications development and implementation company. “For example, if an organisation is approaching a reporting threshold, a useful tool would provide mid-day tracking and monitoring so a particular position can be addressed or unwound before the company has to report to a regulatory agency that they are out of compliance. That’s something many firms are looking at, it’s not something they can do yet.” According to the survey, 66.7% of respondents do not have an automated system in place to provide real-time pre-trade and post-trade analytics. Many companies use proprietary platforms for risk analytics, but mixing off-the-shelf and self-built solutions is also a common practice among participants in this sector (see Figure 2). In terms of the data these companies currently access, most use feeds from organisations such as Bloomberg, according to the survey. Almost 74.1% of respondents do not yet make use of sentiment and text data analytics. Figure 2: What type of technology do you currently use for risk analytics? Proprietary platform (60.4%) Other (please specify) (11.5%) Vendor platform (28.1%)
  • 6. 6 WatersTechnology I whitepaper l sponsored by SAP Next generation data analytics New technology Financial companies are certainly interested in upgrading their data infrastructure and can see the benefits new technologies offer. According to the survey, 74.7% of respondents believe in-memory data management would help “significantly” with the development of future trading systems. However, getting to grips with such technology is often another matter - only 40.2% of respondents currently use in- memory data management, for example (see Figure 3). Figure 3: Are you currently using in-memory data management? Do you think it will help significantly in building future trading systems? Yes (40.2%) Yes (74.7%) No (59.8%) No (25.3%) “There is an enormous amount of data out there that people are trying to get their heads around,” says the managing director of the applications development and implementation company. “Some [of our] clients are wrestling with market data and the increased information available with regards to trades and transactions that can allow for better predictive modeling or better risk management.” While products such as in-memory computing platform SAP Hana are impressive in terms of computing power and potential application in the capital markets space, he says, many financial firms are still “trying to figure it out”.
  • 7. Next generation data analytics WatersTechnology I whitepaper l sponsored by SAP 7 Improving the precision and speed of risk calculations is a priority among 77.5% of those surveyed, however (see Figure 4). While some respondents use Excel for such activities and many have built their own platforms, others have already developed cloud-based applications, or at least plan to develop such a strategy in the future. Figure 4: Is improving precision and speed of risk calculations a priority for your business? Yes (77.5%) Yes (31.0%) No (22.5%) No (69.0%) According to the survey, 31% of respondents have developed a cloud computing strategy for their trading business so far (see Figure 5). Figure 5: Have you developed a cloud computing strategy for your trading business?
  • 8. 8 WatersTechnology I whitepaper l sponsored by SAP Next generation data analytics For the companies who have already taken advantage of cloud-based technology within their businesses, 63% of those surveyed by WatersTechnology use it for end of day or real-time analytics. The cloud is also used for reference data checking (55.6%) and strategy development (33.3%) (see Figure 6). Figure 6: If yes, for which applications: Challenges Another survey respondent, a market data systems specialist at a German bank, believes cloud technology will continue to be a major focus for vendors, particularly when it comes to providing access to smaller companies and brokerages. However, he adds that uptake among financial firms may depend on a company’s outlook. “I think [the use of cloud-based systems] will grow but it depends on a company’s market model,” he says. Those hoping to take an aggressive approach, attracting new business and entering new markets will almost certainly need to adapt their data architecture to access and analyse greater amounts of information, he says. “But for companies like us, a regional bank that is returning to a more traditional path and concentrating on the savings market, retail and institutional clients, and vanilla products, such changes may be less attractive in the near-term,” he adds. For those companies that are interested in developing their data infrastructure, even if they have created an action plan to make technological innovations such as the cloud work for them, budgetary constraints often present an additional hurdle to clear. The owner of a Wisconsin-based technology consultancy that deals mostly with small and mid-size financial companies, who also completed the WatersTechnology survey, says that while some of his clients have considered the use of new technology such as cloud-based applications or in-memory data management, they are often financially constrained when it comes to changing or updating their current infrastructure. “Asset managers often have trouble warehousing data and that’s obviously where the cloud can be very useful, but in many cases they have trouble making a business case for additional spend,” he says. Excel spreadsheets are a common tool used by such firms and have been performing well for the most part, causing management to question the need for spending additional money to upgrade data systems. End of day or real-time analytics (63.0%) Strategy development (33.3%) Reference data checking (55.6%) Anything else? (11.1%) 0 10 20 30 40 50 60 70 800 10 20 30 40 50 60 70 80
  • 9. Next generation data analytics WatersTechnology I whitepaper l sponsored by SAP 9 Money is not the only concern. “It’s also a talent issue,” he continues, referring to the need for readily available information technology (IT) professionals within these organisations who can make a new idea work at a moment’s notice. “A company might see an opportunity to run some data, but the person with the IT skills to make that work may be busy elsewhere. Also, there often isn’t enough time to go through a formal budget process [to access funds for additional IT staff],” he adds. Even when a company does have the time and resources to plan out the development of new technology to support smarter data analytics, smaller firms can experience difficulties finding a solution that fits. Another respondent to the WatersTechnology survey, the head of product development at a boutique foreign exchange firm based in the US, says that when her small company switched to cloud-based applications, pricing structures were often based on the needs of larger businesses, with few options for smaller outfits. However, the company pushed on with its move to the cloud chiefly because of the level of control over its own systems and processes such a system can offer. “You have to have your own systems, your own back-ups and your own disaster relief,” she says. “When you’re a small operation, you eat what your shoot so you need to know you have a fail-safe system.” Solutions There is certainly some level of awareness among financial services firms that technology vendors can and do offer new technologies that could push the boundaries of data analytics in today’s capital markets. For example, 23% of respondents to the WatersTechnology said they had heard of SAP’s Hana, a next generation data management platform that allows users to process large volumes of data in real-time using one database. The obstacles to implementation of such systems described above by these same survey participants may explain the why this technology is not in use right across the industry, but there are solutions available to help financial services companies move forward. The options offered by vendors to enhance data analytics capabilities within the capital markets are growing rapidly, providing CIOs with a range of choices when it comes to developing an arsenal of analytical tools. In-memory computing can considerably boost a company’s firepower when it comes to forecasting, planning and risk management. It allows users to re-build data management systems to suit current and future trading needs such as increasing response times to market changes, meeting increased regulatory requirements, and using smart analytics to search data for new correlations and further develop trading strategies. The combination of in-memory computing with cloud technology means such benefits can be accessed using a fraction of the resources typically required for data analytics. The scalability of cloud-based applications benefits companies of all shapes and sizes and can also grow or shrink to fit the needs of companies experience change internally or externally through the various markets they trade.
  • 10. 10 WatersTechnology I whitepaper l sponsored by SAP Next generation data analytics Contact sap.com/contactsap Sell Side WatersTechnology’s portfolio incorporates the market-leading industry brands serving financial trading firms in print, in person and online – through its series of publications, website, email alerts, conferences, research, training, briefings, webcasts, videos, awards, whitepaper lead generation and special reports. Our 5 financial-market technology titles: Inside Market Data, Inside Reference Data, Buy-Side Technology, Sell-Side Technology and Waters serve the financial community with independent, expert journalism and have built their reputations by providing analysis and news, covering all developments in this fast-moving business in North America, the UK, Europe, and the Asia Pacific region. www.waterstechnology.com Conclusion Even with the knowledge and funding gaps that exist at some companies in the capital markets space, there is certainly interest among capital markets participants in embracing technological innovations that can enable deep data analysis in real-time. Many firms have already built these new technologies into their infrastructure and will continue to push the boundaries of what these platforms can do for their organisations and for the market as a whole. For those presently on the sidelines, embracing these new technologies should allow them to not only keep pace with the competition but also develop unique market insights using tools that are both cost-effective and designed to fit their organisation’s specific needs. About SAP SAP is the enterprise application software market leader, helping companies of all sizes and industries run better. From back office to boardroom, warehouse to storefront, desktop to mobile device, SAP helps people and organizations work together efficiently and use business insight effectively to stay ahead of the competition. SAP applications and services enable more than 238,000 customers to operate profitably, adapt continuously, and grow sustainably. For more information on SAP in Capital Markets please visit sap.com/capitalmarkets.