CCDM Proposes Utility in the Cloud

The Central Counterparty for Data Management (CCDM), a group set up by Financial Intergroup Holdings, has developed a utility concept where a searchable index of reference data would be hosted in a cloud environment and made accessible to regulators.

The creation of an industry reference data utility has been discussed for years now, with the focus being on setting up a new utility that firms feed basic information to. CCDM has instead suggested lifting out firms’ existing databases, hosting an index of the data in a cloud environment, and providing a mechanism for regulators to access the data.

With the cloud model, regulators would have an interface, linking to the cloud and allowing them to query and search the data they want to look at, at the time they want to look at it. “I think we’re now in a position to be able to do that,” says New Jersey-based master data management expert Malcolm Chisholm, who is also involved in the group.

Regulators need to be able to find out where the risk is, and to do that it is essential for a utility to have a search mechanism. Chisholm says it is not sufficient to have a system that operates within a framework for pre-defined assumptions. If the queries are pre-defined, they will not capture new problems that arise. “It is not really good enough to have a system pre-baked to answer a few queries,” he says, adding that a more flexible approach is needed to do proper risk analysis.

It is also essential the utility is global, meaning it will cover hundreds of databases. According to CCDM, this is now possible to do from a technical perspective. New York-based Allan Grody, president, Financial Intergroup Advisers, says the technology that sits behind it already exists. “There’s a handful of best-of-breed platforms,” he says.

Most institutions have reference data programs now, and this model would mean they could leverage the work done in terms of centralizing data as part of enterprise data management programs. “We take all the brilliance that exists and connect the dots,” he says.

California-based Bob Mark, CEO of Black Diamond Risk, who also works with CCDM, says there is now a way to solve the problem with monitoring systemic risk. “Why not take advantage of some of the existing players’ infrastructure out there, so we’re not reinventing the wheel?”

The approach CCDM is proposing is designed to leverage the latest in technology —the technology to support the hosting of ultra-large-scale cloud environments. “The technology now exists,” says Chisholm.

The system would require a large, scalable, private cloud environment, and the ability to load data into the cloud from many different sources. It would also require the ability to deal with privacy issues, and Chisholm says there is also technology available for this now. “It’s a very realistic proposition,” he says.

The idea is that firms will not have to release who their clients are as the data will be indexed in the cloud, and client

names will not be made available. Regulators will still see that Client A is the same client at different firms, meaning they can contact the firms if there is an exposure issue with this client, explains Grody.

Earlier this year, CCDM created a working group to look at the proposal, and the group has now confirmed this is a viable proposition. “The group has opined that it’s doable,” says Grody, who adds that CCDM has also filed the patent to protect this idea.

But before continuing the work on the technical details, CCDM will continue working on standardization and promote the concept. “If the data is not available in standard format, it makes no difference to have all the brilliant search technology,” he says, adding that now the group is “socializing financial institutions.”

When data is standardized, and if this approach is chosen as a utility for the industry, it would allow for a transitional period. Firms would be able to choose when they want to change as the actual data aggregation will still take place internally.

This is similar to a normal outsourcing model, something there has been a lot of talk about in the reference data industry, but limited activity in. “People have always wanted to outsource, but the problem has been that there was no way to guarantee the data was correct,” says Grody.

With the cloud utility, there would be an insurance-mechanism. Grody says insurance companies can cover for errors of omissions, which are some of the main mistakes that are likely to happen.

Yet, for now, Grody says the challenge is to ensure the group works together, and when it becomes a reality “the early adopter group will do the heavy lifting.”

Meanwhile, the need to create a model for improving availability of data has been a key topic on the regulatory agenda in recent years. One of the lessons learned from the financial crisis was that the right data has to be available to measure the amount of systemic risk in the market.

“If the data is not available we can’t make the calculation we want to make through these models,” Mark says, adding that there is a need to get the data infrastructure in place. “This is an important problem that needs to be advanced to G20,” he says.