What is Bloomberg VCON
Increased efficiency in post-trade systems
Problem case MS Excel
You may have noticed that many investment managers still use MS Excel in this environment today. There is a simple reason for this: it is inexpensive and ready to use quickly. However, you should be aware that the use of MS Excel results in numerous problems and disadvantages as well as a high operational risk. Most of the time, the MS Excel macros or templates with complex formulas created by the departments are not centrally supported, looked after and maintained by the company's IT department. The development and maintenance of the macro or the submission is therefore the responsibility of the specialist department and is usually concentrated on an employee with the appropriate Excel know-how and contradicts IDV compliance. In the event of problems with the MS Excel sheet and the absence of the employee, no one is able to solve them. You should not underestimate this risk, because it means that a comparison cannot be carried out properly on some days and trades to be reconciled are forwarded unchecked. Efforts and costs are thus shifted to downstream processes, where, if necessary, only a reverse transaction is possible.
Complete automation is often not implemented because files are sent to the Middle Office in various formats by e-mail or confirmations are sent by fax. Manual activities with a corresponding susceptibility and frequency of errors are the result. Your ability to control is also limited, as amounts - for example the broker fees - cannot be traced for the Middle Office due to missing data.
Confirmation Matching and Reconciliation - Best Practice
This scenario affects both confirmation matching and reconciliation with the custodian bank. The processes reach their limits as soon as the asset under management increases and the processes have to be scaled and the competitive pressure causes margins to fall further and a higher degree of automation is necessary in order to reduce costs and increase hidden efficiencies.
The solutions offered on the market are diverse and range from service providers who take over the tasks completely to specialized IT systems which, embedded in the company, carry out an automated comparison. At this point I would like to make it easier for you to get started and give you a brief overview.
Confirmation matching in the middle office
Confirmation matching is dominated by the provider Omgeo with its various products. However, Omgeo CTM does not offer you complete coverage of all asset classes. Similar functionalities to Omgeo CTM are also offered by Bloomberg, for example, with its product VCON. With regard to the coverage of the asset classes, however, the products differ. There are also other specialized matching platforms or providers such as FXAll or JP Morgans Morcom.
The platforms are supplied with information on the trading transaction from the sell side without delay. At the same time, the transactions from the investment manager's systems are transmitted to the matching platforms after they have been executed. Matching takes place as soon as both sides are available. Exceptions can be processed with the help of workflow management. This is done, for example, by informing the broker directly in the event of deviations or by accepting the broker confirmation with its fees. Once trades have been successfully checked, they can be automatically sent to the custodian bank or the investment manager's systems via Swift.
With the help of the automated matching platforms, the SDA rate - i.e. the same day affirmation rate - is increased in the company and efficiency is increased significantly. This not only allows you to reduce the sources of errors and the error rate due to manual interventions, but also enables you to be audit-proof for the first time and significantly reduces the operational risk.
Post Trade Reconciliation
By using professional software, you can make the comparison of different systems (reconciliation) audit-proof and efficient. The area of application here is in particular the comparison between the custodian bank and the investment manager, between different systems at the investment manager, for example portfolio management system versus fund accounting, or coordination with the external collateral manager.
A comparison does not necessarily have to take place only between two systems, but can also include several systems. Here, for example, reference is made to a portfolio reconciliation between the portfolio management system, fund accounting and custodian bank, possibly taking into account the trading transactions that have not yet been booked. In investment management, only inventory reconciliations can often be found, although transaction-based reconciliation brings a significantly higher quality to the reconciliation process. Of course, the systems on the market often offer you the opportunity to clarify the deviations - so-called breaks - within a workflow or to quickly access details of the transactions.
The provider Smartstream has been concentrating on tools for reconciliation for years and has expanded its solution to include various other offers. However, providers like Bloomberg also offer you a reconciliation tool for the middle office. In contrast to Smartstream, this tool offers only limited functionalities, but can access transactions made in Bloomberg. Both document the results in an audit-proof manner, significantly increase the efficiency and STP rate while at the same time increasing quality and reducing manual activity with the associated susceptibility to errors.
From today's perspective, investing in systems for the middle office is imperative. The middle office must be relieved of manual activities and automation must be promoted. Existing systems must be optimized and, if necessary, replaced by new state-of-the-art systems. You can only achieve a high STP rate by networking the systems of brokers, custodian banks, collateral and investment managers. This is the only way you can ultimately maintain competitiveness and respond to the challenges of growth and shrinking margins.
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