Computer-based investment strategies are a growth market and the appetite for unique market data is massive. A source for headaches for the banking industry.
Detecting a piece of information that can foreshadow the rise or fall of an asset is the crucial ingredient of quantitative investment, and the industry is going to great lengths to uncover such treasures at a time when publicly available information is quickly acted upon.
The companies active in the business of quantitative investments are experimenting with data from unusual sources, such as satellite images or credit card transactions, «Bloomberg» reported. Others are eyeing up a different source, where data is readily available: the computers of the banking industry.
Delicate Decision
Finding out how many readers a bank reaches with its equity research may not seem particularly exclusive, but the quantitative investors for obvious reasons want much more: exclusive information bordering on insider information. And the banks feel the pressure mounting because the investors are good clients of theirs and the information is considered a valuable good.
While the research departments of banks would be happy to forego with some of the information at the right price, legal and compliance is applying the brakes, «Bloomberg» said.
Fortress Switzerland
At Credit Suisse (CS), the Swiss No. 2 bank, Matthew Rothman is the manager in charge of finding the right approach to this problem. The head of quantitative equity research is exploring which data the bank could sell. «We agree there’s potential alpha in there, but the question is, who does that alpha belong to. We’re trying to be helpful while being extra sensitive,» Rothman told «Bloomberg» in an interview.
Selling data to third party is a particularly important issue in Switzerland. The banking industry has been toying with the idea of creating a giant safe data storage and companies such as DSwiss have put a lot of effort into the preliminary work. UBS, the Swiss No. 1, is testing a virtual data storage for its private investors. Eric Syz meanwhile, the private banker, is promoting the idea of a «Swiss Fortress».
The idea is promising. Selling data to quantitative investors however creates a return today. Striking the right balance between the two will be a task facing the banking industry in coming years.
