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Turbulent Times Lie Ahead for Financial Benchmarks

Two of the key imperatives for successful asset management are speed and accuracy. Asset managers need assured and immediate access to up-to-date benchmark data to seize new opportunities with confidence and ensure their decisions are based on an accurate understanding of market conditions. Today, meeting these imperatives is harder than ever; due in part to the fall-out of the LIBOR and EURIBOR rate-rigging scandals.

Following these scandals, benchmark data – and the people who manage it – have come under more scrutiny than ever, culminating in the upcoming EU Benchmarks Regulation which will impose rigorous new requirements for benchmark administrators. While this scrutiny is welcomed as an important means of restoring faith in benchmarks, it appears that an unintended consequence is that some banks are choosing to end their contributions.

EURIBOR, for example, has seen the number of contributing banks shrink to 20 – a drop of 20 over just five years. There is now real concern that as the number of panel banks setting EURIBOR continues to shrink, it will no longer reflect market conditions accurately. Some commentators are even worried that certain benchmarks may disappear altogether, due to the rising costs and compliance burdens placed on administrators by regulation.

The extent to which benchmarks will be affected by increased scrutiny will only become fully appreciated over time. However, one thing is certain: asset managers need to prepare for any eventuality, and this means putting in place a data management capability that is scalable enough to react to today’s turbulent benchmarks ecosystem. In our fast-changing market, asset managers that can guarantee the data they use is up-to-the-minute will have a clear competitive edge.

The volatility of the benchmarks market is helping to make the case for managed data services more compelling. Managed data services, such as ours, empower asset managers through scale; providing made-to-order services that enable cost-effective sourcing from hundreds of disparate vendors. Managed data service providers such as RIMES not only deliver the breadth and depth of data coverage required by asset managers, but they also have the resources to constantly review the benchmarks landscape to ensure the data buy-side firms use is always up-to-date and 100% accurate.

The turbulence of today’s financial markets means that real-time reactivity is more important than ever for buy-side firms. Those that choose to source their data through managed service providers will find they are armed with an agility and flexibility that competitors will find hard to match.

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