Instrument mastering is increasingly important in an asset-driven world and there are big risks for those who do not get it right.
Instrument Mastering is a component of data mastering – a process that involves linking or merging unmastered data sources with another master data record. An unmastered data source is one that has not yet been through the process of data mastering – meaning the data source may contain errors and duplicates that make analysis and decision making more difficult.
A master data record creates a unique ID that references all data elements across multiple inputs. This process then creates a unique data point, or data record, that can be more easily referenced or linked with other data in a meaningful way.
Data mastering ensures that an organisation’s data is accurate and consistent, reducing the errors in the data and improving analysis, data quality and decision-making – in turn, strengthening investment governance.
In this blog post, we discuss what instrument mastering actually is, how it can help businesses achieve better outcomes and how businesses can manage both operational and data mastering with AlphaCert, enabling compliance and risk mitigation.
What is instrument mastering?
Instrument mastering utilising AlphaCert consists of both operational mastering and data mastering.
Operational mastering is a process that involves creating and maintaining high-quality, reliable data within an organisation’s operational systems and applications. It includes matching and consolidating data points and allows the application of business rules on top of raw data, to ensure the data is complete, correct and current.
With the emerging trend towards decentralised data models, operational mastering creates the ability for a holistic view of data and is often used in alignment with data governance and integration to ensure information is managed effectively across the business.
Where operational mastering is specific to focusing on the operational systems and processes within an organisation, data mastering looks at the full picture – a process that creates and maintains a trusted, single view of key data within an organisation.
Data mastering provides the ability to combine all instrument data together, from different sources, to create a master record for use throughout the organisation. It involves identifier management for all instruments – both market and custom identifiers – as well as classification schemes for data and the creation of segments, to slice and dice your data by attributes.
Instrument mastering is a component of data mastering that concerns financial instruments. It focuses specifically on financial instruments and market identifiers, whereas data mastering is the general process.
In simple terms, a financial instrument is a monetary contract between parties. There are several types of financial instruments, including: cash instruments, derivative instruments, commodities and foreign exchange. Shares, stocks, bonds are all financial instruments, but so are other assets, such as buildings or infrastructure assets.
Instrument mastering is important for businesses as it provides data that has been cleansed, standardised, matched and consolidated. This process removes incorrect data and transforms the data into a format that allows for quicker consolidation, before matching duplicate records and consolidating them into a single record that can be updated across all systems.
Through standardisation and enrichment, the mastered instruments have unique identifiers that allow for streamlined integrations. This process is important because it provides consistent and accurate data across multiple systems and applications – helping to improve data quality, increase operational efficiency, mitigate risk and provide better insights for informed decision-making.
How instrument mastering can help businesses achieve better outcomes
“The biggest driver for Instrument Mastering is having a single source of truth as this leads to efficiency through automation,” explains James Milne, Head of Product at AlphaCert.
“Funds tell us that without having a data platform to master their data, everybody is working on spreadsheets and there’s hundreds of different spreadsheets flying around, and in all probability reporting on different metrics with different results” he explains.
With data spread across different sources, it can take up to an hour to do some simple calculations.
“By bringing all of that data into a single platform or a central place to master that data together and specifically the instrument data within that, you eliminate inefficiencies, remove friction from the process and ensure that everybody is using the same data set rather than having arguments regarding which attribute is correct,” Milne adds.
Instrument mastering is a part of AlphaCert’s core functionality and enables businesses to manage and master the following data sets:
- Countries: ISO Countries with ISO2/ISO3 identifiers
- Currencies: Support across all Currencies
- Asset Hierarchy: N-Level customisable fund structure, Portfolios
- Legal Entities: full support across Issuers, Parent Issuers, Global Parent Issuers, Brokers, Counterparties, Borrowers
One of the key pieces around instrument mastering are the identifiers of those instruments. There are several different market identifiers, from SEDOL, to ISIN, CUSIP and RIC code to Bloomberg codes that allow you to classify an instrument – and getting it wrong can be costly.
One client that acts as an investment bank, has hugely benefited from utilising the AlphaCert platform for instrument mastering, as it makes their own work with customers more efficient and mitigates risk.
If one of their customers says they want to trade a specific instrument, the brokerage needs to have all the different identifiers that somebody could possibly come to them with, in order to identify the instrument to be traded on the right exchange.
“They need to be aware of every instrument that could possibly be traded and all of the details around that. The instrument master data needs to consider every element that can interact and affect the outcome of an investment,” says Milne.
Marrying up the different identifiers to a single common instrument is fundamental to having the whole view of attributes for each asset. The AlphaCert approach to data mastering means that for each asset you have one single primary identifier, as well as other market identifiers or custom identifiers included so it is possible to match, utilize and search for any instrument.
Provider agnostic instrument mastering
Implementing an instrument mastering platform that is provider agnostic, allows organisations to pull data from different data sources, regardless of where the data was originally stored – which is especially important for organisations that have a complex technological landscape. It enables organisations to maintain a single source of truth, across all systems, that provides consistent, real-time data.
“AlphaCert can work with customers’ ecosystem of tools and providers and bring it together to create a single source of truth, that is customised based on the needs of the organisation,” says Milne.
This agnosticism leads to a level of flexibility that companies cannot achieve on their own – working with a variety of data providers, through a process that removes duplicates, pulls in business rules and ensures instruments are clear to work with.
Compliance risk & mitigation
Instrument mastering utilising AlphaCert can help mitigate risk by analysing data in a central location, allowing businesses to identify trends that indicate potential risks or issues before they escalate – enabling them to address risks proactively, as opposed to reactively.
AlphaCert also helps ensure compliance, a factor that is becoming increasingly important as more regulations are being introduced in New Zealand, much like in Australia.
The platform allows instruments to be run through compliance rules that allow for mandates and thresholds to be adhered to and ensure investments are not made where instruments have been blacklisted, or for example, levels of cash or asset holdings are not against mandated allocations.
Instrument mastering ensures data is clean, there are no duplicates, the process is in place to provide a robust and safe way to manage the data, and nothing is lost.
The last thing a financial company wants is any information that shouldn’t go out of the organisation going out of it. There is a large amount of reputational risk involved, as well as data security issues at play. Compliance and risk mitigation mean no regulators asking questions.
AlphaCert works with superannuation funds, managed funds and sovereign wealth funds, helping them with their instrument mastering processes. Get in touch with AlphaCert today to find out how they can help you with Instrument Mastering.