Financial investors are transforming the way they acquire data and today’s modern world depends on APIs. APIs are a way to share abstracted data and display it as needed, securely. Cloudflare, one of the world’s largest content delivery network and DDoS mitigation company, states that “during the first week of December 2021, API calls represented 54% of total requests, up from 52% during the first week of February 2021.”
Another way to measure the popularity of APIs is through FactSet’s Document Search, a solution that enables searches across fillings, transcripts, press releases, and various other documents, e.g., the chart below shows how Investment Banking/Broker firms globally mentioned the word “API” in documents over the last five years—A clear jump and upward trend.
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Source: FactSet
Using the latest figures, 84% of those mentions are from their official filings communicated to various stakeholders, highlighting the commitment of these firms.
It is also a similar story when we look at Investment Management (IM) firms. Approximately 60% of the time, the official filings mentioned API. The more volatile trend in this industry is not a surprise, given the cost pressures and the constant reallocation of resources. However, as technology advances and reduces the layers between investors and their assets, the survivors will need to adopt a client-centric approach and access and analyze data faster and more intelligently to maintain an edge over their competitors.
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Source: FactSet
Investment Banking, Buy-Side Analysts & APIs
For investment bankers and buy-side analysts who ultimately value an asset, APIs play the same functions that blood does in carrying oxygen around our body and keeping us alive. APIs take and deliver datasets to keep a valuation model alive. From the investment bankers’ and the buy-side analysts’ perspective, this type of data delivery has three benefits:
- It reduces the time taken to make a decision
- It automates repetitive tasks; and
- It enhances the quality of the research
Velocity is the speed at which we store and analyze data. Reviewing the traditional data delivery method helps us understand the benefits of APIs. Traditionally, research analysts would rely on receiving a CSV file with the data. This process is not the most reliable as the data delivery is often delayed. Then comes organizing the data and checking for errors and missing values. If everything goes smoothly, they will export this data into a platform to analyze before presenting their research to the portfolio manager to make a buy/hold/sell decision. However, using APIs, the analyst makes a request programmatically for a dataset and gets a result almost instantly, reducing the time it takes to make portfolio decisions.
For example, a typical analyst will spend 20% of their time daily screening for new ideas. The screening process is often repetitive as the analyst looks at the same universe with the same criteria. The analyst can automate such repetitive tasks using Screening APIs and create a screens library that returns securities based on specific criteria over time. These are users looking to move away from legacy technologies to output these saved screens and continue using these screens regularly. The result of this automation is freeing up more time to enhance the quality of their research.
We can enhance the quality of the research, given the volume of data we can access using APIs. Estimates from Statista show that by the end of 2022, we will create, consume, and store 97 trillion gigabytes of data. The data is comprised of structured and unstructured data such as news and social media posts. Adding this to the growth of open-sourced data through APIs, an analyst or an investment banker conducting research is no longer limited to structured financial data. They can now include unconventional datasets in their valuation process and models and thereby increase the accuracy of their valuations.
Moving Beyond the Monolithic Era
The truth is that tech-savvy analysts no longer want to live within the limitations of monolithic software applications, Microsoft Excel, or macros. They want to deliver something they create as an extension of a software application, not a replacement. There are many advantages over legacy methods to programmatically output these results. For instance, running off-platform doesn’t consume software applications or PC resources. In addition, analysts can run screens simultaneously and still use their computers. APIs that calculate complex formulas can extend an application beyond its default behaviors and capabilities.
Furthermore, using APIs with enterprise Standard Development Kits (SDK) can reduce code complexity and create a commonality with other APIs allowing multiple workflows. It opens new avenues for combining previously siloed data and using a productization workflow rather than individual ones. In some instances, less tech-savvy analysts do not even need to understand the API codes. If they can connect to the API, they should be able to access and analyze data instantly. This process is like sitting in a restaurant and placing an order with a server. If you speak the same language as the waitress, you will get served without knowing the cooking instructions.
Despite the clear benefits discussed above, many investment research processes still rely on large worksheets in Excel with VBA macros, screens, and customized query language for automatic data manipulation and reports. VBA is a coding language that millions of people worldwide use to automate tasks in Microsoft Office products. For someone without a computer science background, this is one of the easiest coding languages to learn. The language has existed for eras. For example, a research analyst may use VBA macros to conduct their research in Excel and upload these into their Research Management Systems. The same analyst would be able to create and retrieve their research with an API connected to their Research Management System.
Content Is King
In conclusion, industries across the globe are transforming and becoming technology companies. This technical shift and knowledge apply to all sectors, including, FinTech, finance and banking, real estate, marketing, and advertising. APIs help investment bankers and buy-side analysts create structures using tools that save development time and internal resources. Research analysts can now build, request, and run API requests straight from their software applications. Usage logs are made available for transparency in determining the data type and how much is being used. Self-service demo testing material and SDK documents are often available on the provider’s developer portal for autonomous testing and diagnostics.
Banking and research firms need to embrace APIs to achieve organizational modernization and digital transformation. Legacy processes such as Excel VBA macros and screens are a thing of the past. Data-driven organizations rely on established formulas and screening APIs as the new trusted solution for delivering timely, accurate, and consistent data for impactful business decisions and processes.
As a result of such efficiencies, IBs and IMs have started recruiting college graduates with coding experience, and they expect them to leverage these skill sets in their new jobs. These graduates come from different backgrounds, including engineering, data science, finance, and economics, with experience in common programming languages such as Python. They want to procure and examine more through data and leverage an open ecosystem that fintech companies are now delivering to their customers by commingling content, APIs, and data displays within their multiplatform research workflow. As Bill Gates named one of his 1996 essays, “content is king.” This content needs to be clean, efficient, and consumable while delivering what and where clients need it.
Danial Adibi contributed to this article. For more information on FactSet APIs, visit https://developer.factset.com/.
This blog post is for informational purposes only. The information contained in this blog post is not legal, tax, or investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.
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