Countries around the world have faced economic headwinds in the last two years at least as strong as during the GFC, if not even stronger.
Central banks and governments around the globe have pumped out stimulus packages and slashed interest rates in response to the impact of the ongoing Covid-19 pandemic. By June 2020, the global government stimulus response to the pandemic exceeded $US10 trillion, three times more than the response to the 2008-09 financial crisis.
Most central banks around the world also quickly lowered short-term policy rates to reduce interest rates and provide an immediate cash flow stimulus.
Big data analytics and trading automation were crucial in assisting to make these crucial decisions quickly and effectively, and the recent years provide a salient lesson on the importance of governments and central banks embracing these technologies in the future.
Refinitiv is one of the world’s largest providers of financial markets data and infrastructure, and a subsidiary of the London Stock Exchange Group.
Refinitiv global head of central banks and financial communities Nuno Neto said recent market volatility had demonstrated the need for regulators to capitalise on the opportunities of big data analytics and automation.
“No-one knew what to expect on the back of the pandemic, and the volumes of trade reached new highs. How do you process that information? Do regulators have access to the information as one? That’s what Refinitiv can provide,” Mr Neto said.
“Once they receive that information then it’s about how you store and analyse it. That’s a key part of where we come in. With the right level of financial data and analytics, they can quickly see what happens in the market and determine what they need to do with monetary policy to intervene.”
Central banks have previously been slow to adapt to new technologies, Mr Neto said, with many until recently relying on emails, Excel and offline systems. “That’s a significant operational risk, as the time to market becomes quite significant,” he said.
“The public have learned the importance of central banks and how quickly they need to inject liquidity. They need to have the tools to do that in a very efficient and targeted way. If you have to wait a few days to do that the situation will worsen each time.”
Markets that have transitioned from manual processes to fully electronic systems have seen the usual two-day process of an auction reduce to two hours.
“They can schedule everything in advance, the auction starts automatically, the banks receive all the information and there’s connectivity to back-office systems,” Mr Neto said.
Embracing big data and automation can also help markets be more transparent and open, he said.
“There are a lot of things that sometimes prevent central banks from being more efficient. There’s a lack of price discovery, a lack of transparency – when markets are opaque there is always room for manipulation or collusion. Having the right technology in place makes that very difficult,” he said.
“It can provide 360-degree connectivity between all stakeholders and market participants reporting back with a level of granularity and timelessness that they need to make decisions in terms of market liquidity and management.”
Central banks have a wide range of crucial responsibilities, including monetary and financial stability, market oversight and economic stability, and the use of big data analysis and automation can be significant across all these roles.
Many developing nations are beginning to adopt these technologies too, to great effect.
Bank Indonesia introduced Refinitiv Matching, a Central Limit Order Book system, to help complement conversational dealing and increase liquidity, efficiency and market transparency.
The bank also obtained in-depth trading data using Refinitiv Market Tracker, allowing it to easily view the markets under its jurisdictions and calculate its trade-based benchmarks.
“With all that’s happening, it’s so dynamic and central banks and regulators now need to have real-time access to data and leverage the technology in a way that they can be more impactful and try to improve the overall financial market ecosystem. Technology and data go hand-in-hand,” Mr Neto said.
“One of the few benefits of the pandemic was the swift move into digital. Everyone had to adapt and rely significantly on technology to ensure they could still be operational. There was a significant increase in these stakeholders that tend to be slower in terms of adoption.”
But just collecting huge amounts of data isn’t enough. The real issue is about the quality of this data and how it is analysed to produce more stable markets.
“It’s about quality versus quantity, and how to process information in a timely manner to empower key stakeholders to make conscious decisions. The challenge is how to have access to reliable data, with that level of granularity, timelessness and accuracy that they require,” he said. “Data becomes extremely relevant for regulators.”
Refinitiv is playing a key role in collaborating with central banks and regulators to better understand the market needs, and to empower them with best-in-class integrated solutions and data in every part of the financial eco-system.
This story was produced as part of a commercial partnership between InnovationAus.com and Refinitiv.
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