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David Newman Strategic Planning Manager, Vice President Enterprise Architecture, Wells Fargo Bank January 2012
"We can't solve problems by using the same kind of thinking we used when we created them." Albert Einstein
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Agenda
1) Mission of joint EDM Council/Object Management Group Semantics OTC 1) Mission of joint EDM Council/Object Management Group Semantics OTC Derivatives Proof of Concept Derivatives Proof of Concept 2) Business and Regulatory Drivers 2) Business and Regulatory Drivers 3) Briefing on Semantics as an Enabling Technology for Expressing and 3) Briefing on Semantics as an Enabling Technology for Expressing and Operationalizing Financial Data Standards Operationalizing Financial Data Standards 4) OTC Derivatives POC Demonstration 4) OTC Derivatives POC Demonstration 5) Discussion and Next Steps 5) Discussion and Next Steps
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Organization
Wells Fargo EDM Council Thematix Thematix EDM Council Londata Super Derivatives ISDA UBS Semantic Arts Adaptive London Market Systems Citi JP Morgan Chase Fincore
Role
Lead Core Team Core Team Core Team Stakeholder Subject Matter Expert Subject Matter Expert Subject Matter Expert Subject Matter Expert Subject Matter Expert Subject Matter Expert Subject Matter Expert Subject Matter Expert Subject Matter Expert Subject Matter Expert
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2) Classify Financial Instruments into Asset Classes* 2) Classify Financial Instruments into Asset Classes*
Ability to encode concepts in machine readable form that describe key provisions specified in Ability to encode concepts in machine readable form that describe key provisions specified in contracts in order to identify levels of risk and exposures contracts in order to identify levels of risk and exposures Ability to link disparate information based upon explicit or implied relationships for risk analysis Ability to link disparate information based upon explicit or implied relationships for risk analysis and reporting, e.g. legal entity ownership hierarchies for counter-party risk assessment and reporting, e.g. legal entity ownership hierarchies for counter-party risk assessment Ability to define data standards, store and access data, flexibly refactor data schemas and change Ability to define data standards, store and access data, flexibly refactor data schemas and change assumptions without risk of incurring high IT costs and delays, evolve incrementally assumptions without risk of incurring high IT costs and delays, evolve incrementally
4) Link Disparate Information for Risk Analysis * 4) Link Disparate Information for Risk Analysis *
5) Meet Regulatory Requirements, Control IT Costs, Incrementally Deploy 5) Meet Regulatory Requirements, Control IT Costs, Incrementally Deploy
*Swap Data Recordkeeping and Reporting Requirements, CFTC, Dec 8, 2010 *Report on OTC Derivatives Data Reporting and Aggregation Requirements, the International Organization of Securities Commissioners (IOSCO), August 2011 **Joint Study on the Feasibility of Mandating Algorithmic Descriptions for Derivatives, SEC/CFTC, April 2011
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Data challenges for entity and instrument identification, classification and relationships
How can we evolve from a state of data disorder to data order? Current State of Financial Data Limited data standards Data rationalization problems Data incongruity and fragmentation Opaque data silos limits integration Cryptic codes, programs, brittle data schemas and fixed taxonomies
Jackson Pollock Convergence
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How can we supplement our existing investments in data management to resolve these challenges and achieve these goals? 7
Target State of Financial Data Pervasive data standards Data precision, clarity, consistency Data alignment and linkage Data integration despite silos Flexible and intelligent data schemas and dynamic classifications
Semantic Web Technology Can Help Organizations Mature their Data Management Capabilities
The true value of an information management system is ultimately based upon the intelligence and expressive power of its data schema or model
Semantic web technology provides highly advanced data schemas (ontologies) and tools that can help organizations better define, link, integrate and classify their data
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FIBO
Securities Business Entities Derivatives
Loans
Built in Actions
Corporate
Industry initiative to extend financial industry data standards using semantic web principles for heightened data expressivity, consistency, linkage and rollups Semantics is synergistic, complementary and additive to existing data standards and technology investments in data management!
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Understands
Understands
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Object Object
David
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A causes B
B causes C
C causes D
Some Examples of Semantic Axioms that Allow Machines to Represent Human Concepts
A class (or property) is Subsumption a sub-set of another class (or property) Mother subClassOf Parent Marge type Mother -> Marge type Parent Person hasBirthMother Mother Lisa hasBirthMother Marge Person marriedTo Person Homer marriedTo Marge -> Marge marriedTo Homer Person hasAncestor Person Bart hasAncestor Homer and Homer hasAncestor Abraham -> Bart hasAncestor Abraham Person hasParent Person: Person hasSister FemalePerson -> Person hasAunt FemalePerson Bart hasParent Marge : Marge hasSister Selma -> Bart hasAunt Selma NuclearFamily equivalentClass = hasFather exactly 1 Father and hasMother exactly 1 Mother and hasChild some Child Simpsons type NuclearFamily -> hasFather Homer and hasMother Marge and hasChild (Bart, Lisa, Maggie)
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Property can have only one unique value Property relation holds true in both directions of the relationship If A has a relation with B, and B has a relation with C, then A also has a relation with C Properties can be linked together to form a chain of meaningful relationships Describes new class by associating multiple classes, properties and values together
Restriction Classes
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Ontology Spectrum*
xp e ve si s re
Modal Logic First Order Logic Logical Theory Is Disjoint Subclass of Description Logic with transitivity DAML+OIL, OWL property UML
strong semantics
om Fr
ss e
to
re o
Conceptual Model
RDF/S XTM Extended ER
Thesaurus
ER
Taxonomy
Relational Model, XML
weak semantics
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SwapAssoc
Party
Equivalent Class
Swapstream
SwapParty
XML
Lingua franca of web service messaging payloads following W3C standards Used to tag data elements with standard labels that conform to a predefined schema Forms structured data hierarchies Document hierarchy can be queried While XML tags associate data to labels, the meaning of the labels is not inherently understood by the computer requiring custom program logic to process each label 1/30/2012
Relational
Dominant database implementation Highly mature software and tools Data is physically organized within tables and accessed by matching related columns in different tables that fulfill various conditions Knowledge within application logic Hard-wired and brittle schema/data Design, construction, access, mgt are labor, time, resource intensive
Semantics
Emerging form of knowledge representation offers highly intelligent form of data organization Conceptually describes the meaning of data and its relationships in a way that both people and computers can understand Supports classification, reasoning and agility Limited, but growing, set of software, tools Can supplement XML and relational database Can begin with knowledge representation and evolve towards operational implementations 16
Swap
SwapAssoc SwapAssoc
Party
Party
Rationalizes
Descriptive
Describes
Ontology
Interest Rate Swap Contract SubClassOf Basis Swap Contract
Describes
e r at g s
SubClassOf Swap_Leg some Equivalent Vanilla Fixed_Interest_Rate Class Interest Rate and Swap Swap_Leg some Contract Variable_Interest_Rate Type hasSwapStream Swap_100001234 hasSwapStream Type SwapStream_1 SwapStream_2 Swap_Leg
e Int
Provides data integration and advanced queries across disparate data sources
Operational
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Challenges:
Knowledge encapsulated in opaque software Data organization tightly coupled with schema Multiple complex tables and data relationships Awareness of physical organization of data required Schemas enforce limited data integrity
Application Software
Access Update
Physical Database
Semantic Technology
Some Business Rules Migrated to Ontology Physical Format Unchanged after New Data Entity Added New Data Entity
Physical Database
Access Update
Application Software
Schema
Inferred
Data
Comparative Analysis
XML
Describes Concepts, Taxonomies, Rich Data Relationships Concepts Understandable to Both Humans and Machines Multiple Classifications and Categorizations of Data Logical consistency and constraint checking Reasoning and Inference Capabilities Ability to change schema/model with low impact/cost Potential to Deliver Faster TTM and Lower TCO Operational Scalability, Efficiency and Optimization Industry Adoption and Prevalence of Skilled Resources Maturity of Tools and Software Current Ease of Mastery of Technology and Skills
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Relational Semantics
Low
Medium
High
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Reduce Complexity
Reduces reliance on arcane legacy data structures and cryptic codes by using more meaningful, natural language friendly constructs
As understanding of data increases, costly data reconciliation efforts by analysts can be reduced Improved data federation and reduced data management costs can potentially be realized As regulatory/industry views and assumptions change, semantics allows data schemas to rapidly reflect change without incurring massive data and application program restructuring efforts Using logically consistent rules and semantic definitions, programs called reasoners can infer data to be classified into special business defined categories and relationships
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Improve Agility
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has party
IR Swap
swaps
ODM Model
RDF Type
OWL versionInfo
DC source
RDF,RDFS, OWL: W3C Semantic languages DC: Dublin Core Metadata Elements SKOS: Simple Knowledge Organization System
Semantic Metadata
rdf:type skos:altLabel skos:definition LegalEntityIdentifier LEI A legal entity identifier (LEI) is a unique ID associated with a single corporate entity dc:source SIFMA (Securities Industry and Financial Markets Association) overview discussion of Legal Entity Identifier (http://www.sifma.org) owl:versionInfo Version 1.0.0 rdfs:seeAlso Office of Financial Research; Statement on Legal Entity Identification for Financial Contracts 1/30/2012
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Events
Downgrade Counterparty Credit
Counterparties
Define Axioms
Identify Key Contractual Events
Risk Analyst
*Report on OTC Derivatives Data Reporting and Aggregation Requirements, the International Organization of Securities Commissioners (IOSCO), August 2011 **Joint Study on the Feasibility of Mandating Algorithmic Descriptions for Derivatives, SEC/CFTC, April 2011
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r ty pa
Sw To ap
r ty pa
ap
Sw To
Risk Analyst
type
subClassOf
Interest Rate Swap
Query all Transaction Repositories to report on the sum total of aggregate exposure for all counterparties and their parents involved in all swaps associated with an interest rate swap taxonomy
Basis Swap
subClassOf
Data is queried using graph pattern matching techniques vs. relational joins
Queries can process inferred data and highly complex and abstract data structures Queries can federate across semantic endpoints (using SPARQL 1.1) Data can be aggregated and summarized (using SPARQL 1.1)
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Lin Se ks t ma o t nt he ic W eb
Risk Analyst
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Semantic Usage Patterns can be Deployed Incrementally and in Tandem with Existing Technology Requirement #5: Meet Regulatory Requirements, Control IT Costs, Deploy Incrementally
Conceptual Ontology Operational Ontology
Schema Data
Reference Ontologies
Primarily for Human consumption Conceptual, design-time, and non-operational Community engagement and update process when warranted Standard terminology, concepts and descriptions for reference, knowledge, data reconciliation, rationalization and governance Integrated ontologies, Upper ontologies for broader meaning
Operational Ontology Schema Inferred Data
Primarily for Machine consumption Ontologies narrowed for operational usage Supplements and operates in tandem with conventional technology Runtime access to knowledge, reference data, metadata Canonical domain models for mappings and interoperability Semantic graph pattern matching queries and automated reasoning
Operational Ontology Schema
Inferred Data
Heterogeneous source data ingested, validated for inconsistencies, and transformed by Semantic Reasoner into domain ontology to fulfill mapping rules Source data inferred by Reasoner, using formal axioms or rules, into abstract classifications, new data relationships/linkages Semantic rules engine can be optionally accessed Query time reasoning can be optionally utilized
Data semantically linked, integrated and accessed both internally and externally using RDF linked URIs which are Web addressable Federated query of semantic and non-semantic data stores using canonical semantic domain model for data interoperability and inferencing
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LE Instances
7) Ingest Legal Entity data into Legal Entity Ontology
2) Build operational ontology for Swaps from FIBO 9) Perform queries to fulfill regulatory use cases and reports
3) Build operational ontology for Swaps from FpML 6) Ingest FpML Swap data into FpML Swap ontology
SPARQL Queries
Reasoning
FpML Instances
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Semantic Building Blocks for Financial Data Standards and Risk Management
Advanced Queries Reasoning and Inferencing Data and Knowledge Representation Financial Industry Business Ontology (FIBO) Data Rollups and Aggregation Data Federation Graph Pattern Matching Inferred Conclusions and Data Linkage Data Classification and Categorization Data Mapping and Integration Data Taxonomies Data Traceability Data Consistency Holistic Data Linkages and Bridges Expressivity Mortgages Securities Derivatives ... Semantic Descriptions of Financial Data, Concepts, Relationships and Rules Higher Level Concepts (Upper Ontologies) Financial Data Standards Systemic Risk Analysis Asset and Risk Categories Runtime Knowledge Transparency Implementation Ontologies Machine Facing
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Operational Descriptive
Trust
Human Facing
Conceptual Ontologies
By embracing semantic technology and FIBO as a basis for enhancing financial industry data standards we are making a strategic investment to improve our data management capabilities by using the tools of the 21st century
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FIBO
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