CanDeal Leverages Canadian Data Pooling Model to Build Data & Analytics Business

Canadian dealer-backed fixed income and derivatives trading platform CanDeal has launched a data arm, dubbed CanDeal DNA (Data & Analytics), which will provide various OTC pricing and data services, as well as running the FRTB-inspired data pooling service that CanDeal launched last year.

At the start of August, DNA began offering composite and evaluated pricing for bonds, aimed at funds and index calculation agents, with price snapshots at 1pm, 3pm, 4pm, and end-of-day each day, based on prices, trades, and terms-and-conditions data from CanDeal’s 10 dealer participants.

“We’re the only entity in Canada that has all that information, so we can mitigate tracking error to trades, we can build any curve, and we can apply domestic market conventions,” says Andre Craig, EVP of CanDeal DNA.

Future plans include expanding DNA’s coverage, such as providing interest rate swap pricing, reference data, and analytics, and pursuing other opportunities to add content—either from within the Canadian markets, or by exporting its data-pooling model to other markets outside Canada, Craig says.

Next year, DNA will focus on creating an ecosystem of banks and vendors, to create greater innovation around its data, and to identify ways that vendors can not only re-sell the data, but also license it for other uses, such as creating new index and analytics products, he says. “And there will be a big push over the next few years to create an open API ecosystem, where we can provide easy ways to integrate third-party technologies—for example, for providing risk-as-a-service with standardized-approach calculations.”

Aside from its existing data-pooling service for FRTB compliance—which creates a comprehensive dataset that should result in more accurate risk models, and therefore reduce the amount of capital that needs to be tied up in ensuring a firm’s FRTB requirements are adequately covered—DNA also already offers a peer pricing comparison service that shows firms their peers’ pricing for an instrument, so they can understand whether their own price is reflective of the overall industry opinion, and, thus, they can adjust their pricing to optimize how much reserve capital they need to allocate.

“For example, mortgage-backed securities pricing used to be all over the map. So we did a lot of research with the banks … and we’ve come up with the best MBS pricing, which has saved banks a lot of headaches around getting accurate pricing, and for pricing assets in their financial statements,” Craig says. “Reducing reserve capital frees up capital on firms’ books so that they can use that capital for their core business. Our model also reduces costs for dealers because they don’t have to go out, have someone pool their data, then have to buy it back,” because under CanDeal’s model, in addition to being “systemically important,” the banks retain ownership of the IP behind their data, he adds.

DNA has a team of around 20 staff reporting to Craig, including quantitative analysts, and designers, as well as so-called Big Data experts, AWS specialists, data governance professionals, and industry subject matter experts. Many of them have cross-functional expertise because—even though DNA has CanDeal’s heritage behind it, as well as Craig’s former employer, TMX Group, as a shareholder—the business is effectively a data startup.

“This shifts CanDeal from just being an ATS to being a fintech and regtech provider,” Craig says.