New Standard-Setting Body Establishes Alternative Data Best Practices

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The Investment Data Standards Organization (IDSO), a non-profit comprised of producers, distributors and users of alternative data, has launched industry best practices designed to mitigate legal and compliance risks and improve alternative data product.

The IDSO is a 501(c) organization formed to develop standards for the use of alternative data—information derived from non-traditional sources used by the investment community.  At launch, IDSO has published preliminary best practices for mitigating risks associated with Personally Identifiable Information (PII) and Web Harvesting. Members of IDSO will refine the preliminary best practices and establish additional best practices.

Membership is open to all alternative data constituents, including providers, intermediaries and users.  Activities are primarily organized around working groups tasked with specific standard-setting objectives.   More details about membership and IDSO organization can be found at www.investmentdata.org.

“By its nature, alternative data sits outside current regulatory frameworks, with evolving legal and operational standards,” said founding member Gene Ekster, a principal at Alternative Data Group who has previously worked with alternative data at Point72, 1010data and Majestic Research. “Industry standards not only mitigate reputational risk for firms involved with alternative data, but also reduce uncertainty for the industry as a whole.”

As use of alternative data rises, the number of alternative data sources multiply and the supply chain becomes more complex, associated compliance risks also increase. There is expanding regulatory interest in alternative data, along with heightened media scrutiny. For these reasons, alternative data participants have formed IDSO to develop consistent standards designed to mitigate adverse impacts on the industry.

The goals of the consortium are to reduce risks associated with alternative data, facilitate the inclusion of new data sources by investors, and lower the burden of exploration and onboarding.  For asset managers using alternative data, IDSO standards are also designed to facilitate onboarding—including collection, cleansing, and quality control—as well as maintenance of alternative datasets. The organization is focused on facilitating the exploration and inclusion of new datasets and reducing the risks associated with those datasets. How asset managers choose to extract value from alternative data or to incorporate alternative data in their investment processes is outside the purview of the IDSO.

For producers and distributors of alternative data, the goal of the IDSO is to be a utility to facilitate the collection, cleansing, quality-control, packaging and distribution of alternative data, not detracting from the specific attributes of different datasets, but rather enhancing their usability for the investment community.

For more background on risks associated with alternative data, please refer to the white paper “Mitigating Legal Risks Associated with Alternative Data”.  There will also be a webinar on the topic at 12 pm EST Thursday 25th January.

Our Take

Integrity Research was approached by the IDSO to help publicize the new organization, given our ongoing coverage of alternative data topics on our ResearchWatch service.  We agreed to participate because we believe strongly that the nascent alternative data industry will benefit from commonly shared best practices.

We have been arguing that the alternative data industry is at a place analogous to that of expert networks a decade ago.  The alternative data industry is not immune to adverse media scrutiny, which in turn can lead to unwanted regulatory attention. The best protection for both consumers and producers is to collectively create and adopt consistent standards for the collection, dissemination and receipt of the data.

 

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About Author

Sandy Bragg is a principal at Integrity Research Associates. He has over thirty years experience as an investment research professional. Prior to joining Integrity in 2006, he was an Executive Managing Director at Standard & Poors, managing S&P’s equity research business and fund information properties. Sandy has an MBA from New York University and BA from Williams College. Email: Sanford.Bragg@integrity-research.com

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