In order to meet its contractual obligations to report the usage of market data to exchanges and vendors, a leading financial services institution needed to improve its provisioning and reporting controls. In the context of the firm’s relationship with over 400 market data providers globally, representing several millions of dollars in annual spend, this proved to be an enormous undertaking. The program would need to include a review of applications across three continents using market data from over 400 providers, representing several millions of dollars in annual spend.
We developed an application risk measurement methodology that measured multiple risk factors associated with each application. Each individual risk was then rated against a risk severity and probability of occurrence scale, which resulted in a list of the applications with the highest inherent risk. We used this information to prioritize the candidate applications for the market data audit. We also initiated a program for auditing the high risk applications based on market data. The audit explored possibilities for calculating the potential liability associated with applications that were not compliant as a result of inaccurate reporting, and subsequently established a standard calculation process for these liabilities. Further, we developed a method for extrapolating overall firm liability for all applications based on the sample that was investigated. In parallel with the audit program, a firm-wide education and awareness campaign was launched to ensure that application developers and business unit heads were aware of the contractual restrictions on using market data and to make certain that newly designed applications would be compliant and within contractual limits.
While compliance to the contract terms was the primary driver for this project, we also identified cost savings within compliant applications. Our contributions to the client’s Internal Application Audit Program measurably increased the firm’s understanding and control over market data access and utilization. Firm-wide knowledge of the contracts governing the usage of market data also helped the firm avoid the pitfalls that led to loss of control in the first place.