Managing Reference Data as Volatility Grips

March 2020 saw unprecedented levels of structured product issuance activity, with 230'000 being issued through CONNEXOR, the Swiss Stock Exchange’s unique reference data tool, topping the previous record of 135'000 set in October 2018 by some distance. During the first quarter of 2020, there were more than 445'000 new issues through CONNEXOR, suggesting that further records are likely to be broken this year.

The Operational Minefield of Reference Data

Although structured products have enjoyed a buoyant first half of the year, there are still some operational challenges. The most pressing of which involves the onward distribution of financial products’ reference data by issuers to market participants (e.g. exchanges, data vendors, CSDs, trading platforms, banks, clients, etc.), an activity which continues to be highly manual and heavily intermediated. In many markets, issuers continue to disseminate reference data by e-mail using non-standard formats such as PDF and Word, which in turn are manually entered into different systems by the final data recipients.

This archaic method of information sharing can create all sorts of operational risks. For instance, data receivers could make a typographical error when computing the information leading to misinterpretations of the data itself. Moreover, financial institutions often have to perform data reconciliation checks to ensure the material they receive is accurate, which is a costly and time-consuming process. The speed of data processing can also be a critical factor. It is not uncommon for issuers to create the official term sheets or distribute data days after a trade has occurred, meaning investors often rely on incomplete information for their own portfolio analytics and risk calculations. This time-lag is also a regular occurrence when issuers communicate the details of product events, which can create added costs for the investors or lead to key events being missed.

How the Swiss Stock Exchange Can Make a Difference

Through the Swiss Stock Exchange’s CONNEXOR solution, a number of the inefficiencies in the reference data lifecycle are eliminated. CONNEXOR offers fully automated and cost-effective reference data management covering the entire lifecycle of a financial product. It does this by centralizing and standardizing the collection and maintenance of product data, simplifying the overall workflow and reducing the number of interfaces involved in the whole process. As a result of the enhanced automation and STP (straight-through processing) of data, efficiencies and cost savings can be realized for all parties. In addition, the platform supports a number of regulatory requirements including PRIIPs/KIDs, MiFID II target market information, IRS 871m along with Switzerland’s incoming Financial Services Act. As Covid-19 continues to create unprecedented volatility and uncertainty, automation will be pivotal in helping to ensure that clients receive quality reporting and timely information.

"In the structured products market, the benefits of automation can be felt most during periods with high trading volumes. New structured products can be created and launched almost immediately, traders can focus on their business and do not need to waste time with product reporting requirements via phone or mail and clients are informed about product events such as barrier breaches almost instantaneously," says Markus Gutzwiller, Head CONNEXOR at the Swiss Stock Exchange.

Next Stages

The Swiss Stock Exchange has identified a number of growth opportunities for its CONNEXOR platform. In addition to widening the number and scope of financial instruments it can support, CONNEXOR is targeting the APAC (Asia Pacific) market. Here, many processes which are based on structured products are still carried out manually. However, investors and private banks increasingly demand better quality and more timely data – exactly the advantages CONNEXOR can offer.

A More Than 10 Year Success Story CONNEXOR has seen tremendous growth since its inception in 2009, with more than one million newly issued structured products flowing onto the platform each year, corresponding to around 5'000 new product submissions on a daily basis. In 2019 CONNEXOR supported the sourcing and distribution of around 15 million product updates, representing approximately 50'000 fully automated lifecycle events every day. Moreover, the platform fully supports regulatory requirements such as PRIIPs/KIDs, MiFID II, IRS 871m along with Switzerland’s incoming Financial Services Act.