Wednesday, 18th March 2009
Tim Buckley Owen
‘Exaggerated faith in rational and self-correcting markets’ underpinned the current global financial crisis, which was brought about partly by ‘financial innovation of little social value’, according to the Turner Review of global banking regulation. Published by the UK regulator the Financial Services Authority (http://digbig.com/4ykyd), the review includes among its recommendations the regulation of credit rating agencies ‘to limit conflicts of interest and inappropriate application of rating techniques’.
So it’s all the more interesting that that Dow Jones has chosen now to announce that it has reached agreement with credit rating agency Standard & Poor's to add S&P credit ratings changes as part of the Dow Jones Elementized News Feed. Designed for real time trading, Dow Jones says (http://digbig.com/4ykxx) that this new enhancement will allow market participants to deploy S&P credit ratings changes in their algorithmic trading, quantitative analysis and execution, and risk management.
Automated trading could be regarded as the ultimate application of the ‘exaggerated faith’ in markets that so concerns the FSA. Both the US Securities & Exchange Commission (http://www.vivavip.com/go/e8839) and the European Competition Commission (http://www.vivavip.com/go/e14019) also have serious concerns about the role of credit ratings in the present financial crisis.
It may all be some distance from the somewhat less frenetic alerting and research activity that is the stock in trade of the average corporate information professional. But it may prompt us to consider how far it’s wise to put our faith in, say, semantic technology applied to news feeds for sentiment analysis – as opposed to relying on our experience, our knowledge of our clients, and our ‘nose’.
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