Big Data Could Transform Global Financial Markets

Big Data is a big topic in academic and high-tech circles. And in case you haven't noticed, it's a big -- and growing -- topic in financial services too.

In the next few years, expect big data to change the way financial services firms approach almost every part of the business, from asset and risk management to determine credit worthiness and trading, according to a new white paper from BNY Mellon.

The paper, titled "The Transformational Influence of 'Big Data' on the 21st Century Global Financial System," predicts the financial system in the early 21st century will evolve even more quickly than it did in the late 20th century and big data will lead to new approaches in all phases of financial markets, including asset management, research, analytics, asset allocation, trading, and risk management, according to the report. For example, fundamental equity and credit analyses likely will become even more granular in detail and lead to greater emphasis on issuer differentiation.

[To hear how more firms are tacking the big data challenge, read: Demand for Deep Analytics Challenges Data Managers].

Many financial firms are currently working on big data initiatives, although some are just pilot projects at this time. Larger organizations, such as State Street, Citi and JPMorgan, for instance, have building technology pilots for a few years. Other organizations, such as mid-tier and smaller firms, are also looking for ways to leverage big data for improved metrics, business performance and customer service. Many smaller organizations that do not have sufficient IT infrastructure to handle big data initiatives are working with partners, such as Nasdaq OMX's FinQloud, Amazon Web Services and others to build out big data projects.

The paper was written by Jack Malvey , chief global markets strategist for BNY Mellon Investment Management and director of the BNY Mellon's Center for Global Investment & Market Intelligence (CGIMI); Ashish Shrowty, managing director, BNY Mellon corporate technology; and Lale Akoner , investment analyst, CGIMI.

"Will other unintended effects of big data be discovered?" asked Malvey, who questions if the quality of some financial decisions will keep pace with the stream of growing data. "As technology makes broader and deeper decisions, financial decision-making accountability may need to move beyond the realm of financial experts to diverse teams that include data scientists."

The report suggests that big data could make markets so efficient that active investment managers will need to find new outperformance methods. Well-known risks to investors such as surprising economic data releases and disappointing corporate earnings could give way to new ones such as interruptions in the data highway, according to the report.

Superior information can lead to more decisions based on evidence instead of intuition, according to the report. However, the report notes that such conclusions are not guaranteed.

"The advancing utilization of big data in the early 21st century will be recalled as a very big plus for the global financial system," said Malvey. "In our opinion, this will be a major positive disrupter in shaping a healthier and more prosperous future for the global financial system." Greg MacSweeney is editorial director of InformationWeek Financial Services, whose brands include Wall Street & Technology, Bank Systems & Technology, Advanced Trading, and Insurance & Technology. View Full Bio