BNY Mellon is deploying big data analytics for buy-side clients to boost their risk management – and has begun working with its first institution in Asia to use APIs to feed data into their decision-making process.
Rohan Singh, Singapore-based managing director and head of Asia Pacific for asset servicing, says the custody bank wants to provide insights to enable investors to better manage risk.
The bank designed an API so that clients can take data such as counterparty names and positions, and download it into their own production environment.
Custodians have always provided such information, but usually by sending everything in periodic batches. “We had no insight as to what the client would do with the information,” Singh told DigFin. “Now, connecting with them through an API, we can understand how they consume it.”
A client in Singapore has begun using BNY Mellon’s API to get daily information on income collection from dividends and interest, based on Swift messages. “This is our first,” Singh said. “The client will use this to invest more effectively.”
From data to decision
It is early days for the use of APIs to translate directly into clients’ investment decisions. “But the information is going into the client’s data lake, and it’s a step in the right direction,” Singh said.
The bank sees itself as playing a bigger role in how large investors manage risk. Income collection sounds simple, but it involves pulling data about the client’s holdings, which means providing data about all of its counterparties and, where possible, their net exposures. “It’s about counterparty and country risk management,” Singh said.
BNY Mellon is developing APIs to help investors get a better picture of their derivatives exposures. Over-the-counter derivatives are a data challenge, as they are “unstructured”. At the same time, however, investors are using them more, as tools for tactical asset allocation as well as to build alpha-seeking portfolios.
But as usage of derivatives increases, so does counterparty risk – because an investor is exposed to the total transactions of investment banks and other partners.
Custodians such as BNY Mellon are trying to use technology to get better at providing holistic views for clients, even asking them to put their data on BNY Mellon’s own risk systems, which can give a fuller picture of counterparties – because these would be trading with multiple clients of BNY Mellon, so it has more information in its data lake to cobble together. (The bank owns Eagle Management Systems, a data management provider.)
Singh says the combination of data lakes, APIs and analytics mean custodians such as BNY Mellon can take a more active role in helping asset managers grow their business.
“Can we create the intelligence to help them design better products?” he said. “We’re working with some asset managers to understand the value of providing them insights into their data…The technology is there, which means this is a business question. Are the insights we are giving clients powerful enough?”
He says the answer is not a straightforward yes or no, but for service providers such as custodian banks, there are goals beyond a particular offering. “It means working more with the client,” Singh said.