Date: Tuesday, May 23, 2017
There are two common complaints by firms who are being audited by exchanges. The first - audits are difficult to prepare for, and take up too much time. The second - audits quite often result in an ‘audit finding’, or a hefty back payment charge, because the firm ‘did something wrong’ that was not clear to them from the exchange’s data usage policy. Why do audits take up so much time? Audits tend to take a lot of time to prepare for because the audited party doesn’t know which information is required for the audit, or where to get it from. Audit questions tend to be generic to cover all the exchange’s customers, from vendors and banks, to hedge funds and software houses, and everyone else in between. All the exchange wants to know is; 1. Where do you get your data? 2. What do you do with the data? 3. How does a firm report its usage back to the exchange? Audit findings normally come from any discrepancies between the ‘what do you do with the data’ and ‘how you report (and pay for) its usage?’. Unexpected audit findings can be avoided by firms being better-informed of the details of the polices of exchanges, and by knowing what their users, and applications, are doing with the data. Cutting through the jargon To make life easier for market data professionals, Axon has been through all of the exchange policies, cut through the jargon, and filled its exchange policy database - PEAR - with policies that use standardised terms and are simple to understand. This means there is no interpretation needed. Axon has worked with exchanges to get the policy data required to answer the questions typically asked of firms by exchanges at audit. Applications and Onboarding With regards to applications, the best way to cut down on the audit preparation time is to be well-informed in advance about what your applications do and which data they use. This means that when you receive an audit request from an exchange, you will have the information to hand, with no need to go and search for it. As part of recertification and onboarding of applications, asking about data requirements should be part of the process. Not only does this help to avoid nasty surprises, but also allows you to keep up-to-date on any changes to policies that might affect your firm as well as allowing you to prevent any gaps forming between the documented use of data and the actual use of the data within the firm. If there are any changes required, make sure that you are paying the right licence fees and data charges as soon as you need to so they don’t stack up over time, which can lead to hefty claims. How ACT can make life easier ACT, Axon’s Application Compliance Tool, allows for custom questionnaires to be added for both onboarding and recertification, meaning that, rather than referring to a stack of word documents that are out of date almost as soon as they are completed, you can use ACT as your repository and build your process for onboarding and data management around it as a hub. Each time new data is requested, then a workflow can be started and completed in ACT. When an audit is announced, you can then instantly view which of your applications are using the exchange’s data, but also what they are using it for. You can even run a report with minimal effort and pass it to the auditor to show where their data goes, and what each application does. Keep up-to-date Opening a new recertification period to make sure all application owners update their applications in ACT with the latest consumption and functionality information. This way you can ensure the data you present in the audit is up to date. Soon, you will also be able to work out your estimated exposure based on use versus licences directly within ACT, meaning no more nasty surprises for you. While unable to make audits go away completely, by providing the policy information in an easy-to-read language in PEAR, and by showing application usage in ACT, Axon can help make audits a little less painful.