Join the FTF News LinkedIn Group

Posted on March 23, 2012 by

You follow us on Twitter and you follow our blog, now we invite you to join the latest FTF social media endeavor, the FTF News LinkedIn Group.  This group consists of discussions around the latest issues and trends affecting securities operations and technology.  Members include FTF News subscribers, FTF clients and attendees of FTF events and trainings.  So, if something’s on your mind, please come and state, debate and discuss!  We hope to see you there. 

Posted in Financial Technologies Forum (FTF), Fun Friday, Social Media, Uncategorized | Tagged , , | Leave a comment

WHAT IF THE RISK DEPARTMENT REALLY LOST AN HOUR?

Posted on March 21, 2012 by

ImageGuest Contributor: Marcus Cree, Vice President, Risk Solutions, SunGard’s Capital Markets Business

With spring in the air, the U.S. clocks have gone forward, stealing an hour from us. 

Obviously it is an illusory lost hour, but it does provoke an interesting thought experiment: if you were to actually lose an hour of the working day, where could you improve efficiency to make up for the lost time? In the risk management department, it would be a tough call. Let’s take a walk in a risk manager’s shoes for a day…

The average day starts with checking the overnight results. Here, time is at a premium as any obvious data errors need to be identified, and if the error is large enough, it can prompt a complete rerun of the risk numbers. This is, in part, due to the fact that risk reports are run against all levels of the hierarchy, with each new level being treated as a new entity.  

If the base risk numbers could be run at the trade or position level, and the logic required to transform these into hierarchically aggregated risk reports done at the point of enquiry, it would dramatically reduce the time taken to correct errors.  If only the trades or positions affected by the error needed to be rerun, as soon as the correction was in the system the right numbers would be running through the logic, creating correct risk reports. 

Once the runs have been checked, there is the process of distribution. This will vary from firm to firm, but generally involves transplanting risk results into spreadsheets or reporting databases, and emailing or releasing the numbers once this is complete. The time criticality of this process is largely determined by a few factors: 

  1. How much do the stakeholders use the risk numbers? If risk numbers are used as a strategic tool, then they need to be available before trading starts. If they are simply a reporting base, this is not as urgent.
  2. How much do the stakeholders trust the risk numbers? If the models for the risk or the pricing within the risk are not fully trusted, then it is likely that even with the best intentions, the risk reports ultimately will not be used by the stakeholders.
  3. How well do the stakeholders understand the risk numbers? Are the numbers created to reflect the risk takers’ view, senior management’s view, or is it the risk manager’s job to translate between the two?

If the risk calculation engine could send the results immediately to the reporting database, where they could be checked see above using the same distribution tools and dashboards used by the stakeholders, then this entire step could be removed. As corrections occurred, the results would be dynamically corrected as well, with potential operational errors involved in manual report distribution disappearing, and a simple traffic light system could be employed to show when a report was considered good.  

Whilst we are here, we could throw in online risk model validation like a dynamic back-testing report, so that as well reducing the time to get the reports into the stakeholders’ hands, the doubts around the validity of the models could also be mitigated. By combining dashboards between desk levels, stress testing and enterprise level risk numbers, it would be possible to illustrate how these metrics impact each other and work together, significantly increasing the understanding of risk from the multiple points of view.

Once the reports are out, the stakeholders themselves may find errors and email the risk managers, who then check those errors and make adjustments if necessary. This may be time critical, based on the importance of the numbers to the stakeholders. The bigger risk of efficiency loss is the crossing of emails, and the obvious operational risk impact that has.

If the system’s dashboards could be used to message around the acceptability or otherwise, and be fully audited, this would remove a significant headache and potential extra time loss.

It would seem that by streamlining the calculation process and increasing efficiency in the production control and result distribution process, there would be a good chance of increasing the cultural adoption of risk. This involves putting new eyes on the system and its outputs, and improving the communication between those who set the risk appetite and those who consume it.

Something for the risk department to think about as they enjoy the lighter spring evenings.

 
Posted in Uncategorized | Tagged | Leave a comment

The Magic List

Posted on March 15, 2012 by

“The Holy Grail” is what some people feel they have found when they land a spot in a brokerage company’s mutual fund advisory program, according to the Wall Street Journal. Achieving a spot on such a list for a new or small mutual fund is not an easy task.  But, if they can accomplish it, they can almost guarantee that their fund will have a stream of money consistently coming in, keeping them competitive within the market.

For those who might not know what a mutual fund advisory program is, this is where “clients choose a model asset allocation, and the companies select the funds to build the portfolio,” as explained in the Wall Street Journal article. This program breaks down to an environment where there is a large group of investors all being placed within the same funds and investing large amounts of money into those funds, which have been chosen as models. So, for a fund to be enlisted into these programs, it is a little like hitting the jackpot. But how do you land a coveted spot on the short list?

Securities firms put a lot of research time into a variety of funds in order to create these programs. A fund can be eliminated from the pool for a number of reasons. If they don’t have the correct operational requirements they will be cut on the spot, and then the following questions will be asked: Who is the fund manager? Are they following a specific plan and staying on track? Will they align well with other funds within a portfolio? And the list goes on.

There are two things a fund can have that will help them come out on top after careful consideration   - being small and having a big name associated with it. Small funds are sometimes preferred for investing in small stocks, though there may come a time where these small funds become too large to continue to operate efficiently.  They also have the means to come up with creative solutions more quickly than a large fund would be able to do. And, as we all know, the less people you have to answer to, the quicker a final decision can be made. So in this case, small is good!

For the second point, having a “known” portfolio manager helps a great deal. A known name breaks into the market much more rapidly than a fund managed by a group of newbies. Known names within the industry come with a reputation, and as long as the reputation consists of strong returns, securities firms will look past the fact that the fund itself is new.

Mutual fund advisory programs are a great way for funds to get their start, and funds should make sure to plan accordingly in order to get on the list!

Posted in Financial Technologies Forum (FTF), Financial Technology, Wall Street | Tagged | Leave a comment

Euro Crisis: To prepare or hope it resolves itself?

Posted on March 14, 2012 by

Guest Contributor: Subbiah Subramanian, Head of Instrument Engineering, Eagle Investment Systems

After weeks of suspense, Greece reached an agreement with the creditors to restructure its debt.   Some groups within the global financial market such as the ISDA called it a default, as this restructuring resulted in financial losses for creditors. This triggered a credit event in the CDS markets on Greek debt. The larger question remains:  is this restructuring one step closer towards a stronger Greece, or is it preparation for a transition out of the Euro? Last week’s restructuring still leaves about two thirds of Greece’s sovereign debt on its books. Furthermore, Greece is one of a few countries in the Euro zone experiencing a fiscal crisis. We have yet to see the true financial picture of substantially larger economies like Spain.

Today’s market consensus is that when one or more countries abandon the Euro currency, the event will be sudden and there will be no lead time to implement currency redenomination. For financial institutions, the prudent course of action is to be prepared on two fronts:

  1. From an exposure and risk management standpoint, firms need to understand how their investments are exposed to countries in the Euro Zone. This item falls mostly on investment professionals.
  2. From an operational perspective, firms need to know how to execute the redenomination of an instrument currency from EUR to a country specific currency. This is best tackled by operational and IT groups in the organization.

There are several steps companies can take now to prepare.

  • Set up a task force of individuals from key areas of the business like trading, accounting and performance & risk with pre-assigned roles and responsibilities. This task force should have representation from business, operations and IT departments.
  • Take a full inventory of Euro denominated positions to establish the level of exposure and identify where you need to focus.
  • Collect details on the issuing authority for securities to best understand the likely monetary legal jurisdiction – is it a municipal authority, the federal government, the European Union, etc.? This will help determine if a security will redenominate out of the Euro to a new currency.
  • Examine closely any funds based in Europe that might see the need to convert into a redenominated currency and consider the legacy issues of these positions.
  • As a matter of urgency they should speak to their auditing firms to know the tax implications of redenomination if the law considers it to be more than a mechanical change.
  • Be in touch with data vendors to understand their plans. It is key to be in sync with how market data is going to reflect currency redenomination.

This is not over, so stay tuned for more!

If you would like to hear more from Eagle Investment Systems, attend the 5th Annual Performance Conference presented by FTF and Olmstead Associates in New York City on March 21st.

Posted in Financial Technology, Guest Blog | Leave a comment

The Mandatory LEI – Countdown to Implementation

Posted on March 13, 2012 by

FTF will be hosting a complimentary webinar on March 28, 2012 at 11a.m. EDT on the upcoming LEI being mandated by Dodd-Frank….

The financial services industry has been looking to push for the use of Legal Entity Identifiers (LEIs) for some time. There has been resistance due to the inability to make a strong business case on the basis of process improvements.  This business case for implementing LEIs can no longer be disputed as Dodd-Frank now makes it mandatory for firms to integrate these identifiers into their current processes for standardized reporting and risk management. The clock is ticking to meet a July 16th deadline for implementing a new LEI framework, but this is proving difficult, especially since the new LEI framework has yet to be finalized by the Financial Stability Board (FSB).  To make matters even more interesting, recent findings of an FTF survey indicate that 43% of respondents don’t know how to define an LEI!

Therefore, join our webinar on March 28th to hear leading industry professionals, including the President of the EDM Council, discuss the basics of an LEI, focusing on the challenges firms face with the upcoming front-to-back integration and the opportunities LEIs can present to your firm.  Hear what firms are also doing to create more accurate risk management measures through this implementation process.  The discussion points will focus on:

What’s Going On

  • Putting LEI into overall context
  • Update on the global governance process (under direction of the Financial Stability Board)
  • LEI as part of the larger issue of identity management (underway throughout government)
  • Implications to CFTC final reporting rule

Why is this Important

  • Focus on the challenges firms face managing front-to-back integration (alignment, integration, mapping)
  • Focus on the opportunities this presents to firms
  • Regulatory reporting
  • Client servicing (client compliance, client risk analysis)
  • Process automation (operational efficiency)

What Should You Do

  • Hear what firms are doing (insights from our upcoming benchmarking report)
  • Hear what firms face with internal alignment (unraveling, mapping and reconnecting to a common identifier)
  • Hear what firms face verifying links, hierarchies and relationships
  • Timeframes, deadlines and deployment

Speakers:
Mike Atkin, Managing Director, EDM Council
Ludwig D’Angelo, Executive Director, JP Morgan

Register Here: http://www.ftfnews.com/2012_LEI_Webinar

Posted in Back-Office, Buy-Side, Compliance, Data Management | Tagged , | Leave a comment

A Shifting Focus for OTC Derivatives

Posted on March 7, 2012 by

Guest Contributor: Tony Scianna, deputy head of strategy, SunGard’s capital markets business

In recent years, we have seen many developments in getting the industry to light speed in the front office, but now the focus appears to be shifting to real-time data management and post-trade processing applications, especially in the OTC derivatives space. As the CCP landscape continues to evolve in the midst of unprecedented regulatory reform around the globe, firms now face the daunting task of adapting their post-trade processes to meet their current requirements and to prepare for the future.

While finalizing new rules for regulatory reform may be taking longer than anticipated, the impact of these changes is already being felt everywhere, from the movement of OTC derivatives transactions to central clearing to the myriad new reporting requirements that have begun to crop up globally. Even though we don’t know what the exact rules will be, firms participating in the OTC derivatives markets do know the general reasons behind the rules – increasing transparency and reducing systemic risk. And achieving this requires a focus on and investment in the back office.

At this point, firms have a choice: deal with the one-off regulatory requirements as they are announced or equip themselves with an enterprise-wide approach to tackling current and future rules. Of course, the choice should be clear; investing in flexible, enterprise-wide back-office capabilities today will allow firms to better adapt to any new regulatory demands on the horizon.

As firms consider this, they must determine how they will actually capture data from disparate applications, cross-reference and standardize that data, and then store it in an environment that is available on demand 24 hours a day, seven days a week. When it comes to post-trade processes, firms should ask: how can we report on any or all transactions globally across the enterprise in as close to real time as possible? Answering this question is the root to dealing with any new requests from a regulator, auditor, CEO or risk manager.

With many more changes to face in the months and years to come, this will allow firms to meet whatever new challenges the industry requires.

To learn more on OTC Derivatives Operations, check out our upcoming 4th Annual OTC & Exchange Traded Derivatives conference on May 7th in Chicago.

Posted in Uncategorized | Leave a comment

Face-to-Face Takes on New Meaning

Posted on March 6, 2012 by

I was intrigued to read a piece in Information Week this past January on desktop video conferencing and a recent rise in its usage.  Basically, the article states the appeal for video conferencing lies with “improving employee and customer collaboration while reducing travel costs”.  Another reason given was that video can be more useful than text or voice communications alone.  I have to say that I agree with these comments as I believe the opportunity to see someone when you speak does add to the overall experience of the conversation.  But ever since email was introduced to the corporate world there has been an ongoing debate to prove that true face-to-face communication is needed, the argument being that when people are in a group and can see facial expressions and body language, it prevents miscommunication and builds trust.  But can’t the same results be achieved with videoconferencing?

In today’s world most everyone has a desktop or iPad and often use programs such as Skype and Facetime to stay connected with family and friends.    So can’t video conferencing programs such as these easily translate to the corporate world?

With this growth in communication, I began to think about how this could benefit FTF and me.  Specifically, how might video conferencing impact our training seminars?  I think this is definitely an area that we will see growth in, but unlike online video meetings you may have with a client or colleagues, I’m not sure I’m completely convinced this is ready for the training home front.  Perhaps if it were a small group being trained then it could work.  However, when you have five or more being trained, the instructor might find it difficult to get a sense of the comprehension of the topic being presented by just seeing faces on a computer screen.  In addition, the attendees may lose some of the networking benefits when there are no longer breaks throughout the day where a lot of great side discussions occur.

So, while I am all for change and see how advancements in technology are truly helping businesses grow and prosper, I still think more progress is needed in this area before you can convince me to bring our training seminars to the computer screen.  But what does everyone else think?  Would you rather experience a training course from your desk, or travel and sit in a live training session?  I’m really interested in hearing what everyone thinks, so please share your thoughts!

Posted in Conference and Event Planning, Financial Technologies Forum (FTF), Financial Technology, mobile technology | Tagged , , | Leave a comment