What is Reference Data?
A counterparty is a collection of entities in the financial sector to which some risk is associated while security is a financial asset/product/instrument that can be traded. When counterparty and security are traded, then some identifiers are used to describe them, these identifiers are called reference data. The reference data is a fixed standard governed by regulatory authorities and doesn’t change much over time. Some of the identifiers associated with different equity assets are SEDOL, CUSIP, ISIN, CINs, etc. Besides including the description of equity asset, reference data at its most complex stage can define the name of the buyer, seller name, costs involved, etc. Market identifier code (ISO 10383 MIC) which defines the stock market associated with any trade also comes under reference data. Let us see the information provided by reference data and its management.
Information provided by Reference Data
Reference data helps us in knowing different aspects of a trade. The key information provided by the reference data are:
- Reference data helps us in identifying the type of financial product/asset. It also tells us about the maturity date of the financial asset.
- Reference data gives us information regarding the parties, financial institutions, counterparties, etc. involved in any particular trade.
- The pricing of any particular financial asset/product can also be identified by the reference data.
Reference Data in Investment Banking
Reference data sets a standard for trading & other financial activities. Investment bankers need reference data which can provide them insights about their holdings on any financial instrument/asset. Reference data provides better visibility and insights about different aspects of a trade/investment. The benefits of using reference data in investment banking are:
- With better information about the trade and parties involved, you can identify risks associated with the trade/investment and can manage it.
- It helps in cost optimisation as you can categorise similar types of deals/trades with similar reference data and can standardise associated trade processes.
- Capital resources can be allocated accordingly if investment bankers have access to reference data.
- Data analytics can be improved as reference data will set a standard to find relationships among the data sets.
- You can identify the trade processes involved with any particular type of asset and with the information about its reference data one can automate key trade processes.
- Investment bankers can assist their clients easily if they have access to reference data i.e. complete information about the trade.
Why reference data should be managed?
Reference data is heavily involved in different business processes like analysis, compliance, control, etc. and its mismanagement can hamper your business processes. Investment bankers have to manage reference data to maintain quality in their investment processes and to optimise cost successfully. Reference data helps generate results to financial queries of clients quickly. Investment bankers know the trading process of many financial assets and when each asset is defined by a set of identifiers, they can quickly identify an investment opportunity or trade. Managing reference data can also help in better data analytics and you can automate business processes. Customer requests can be quickly responded to if reference data is properly managed. The investment banking sector is hiring individuals with good knowledge about reference data and its management to improve their business.
Reference data gives you information about the trade structure and type. One can learn more about the reference data in investment banking by taking up an online investment banking course from a reliable source like Imarticus Learning. The understanding of reference data is very necessary if you are aspiring to become an investment banker. Start your investment banking course now!