intellimatch operational control

INTELLIMATCH OPERATIONAL CONTROL
Manage market change
MANAGE MARKET
CHANGE
SunGard’s IntelliMatch Operational Control solution suite
provides brokers with a comprehensive reconciliation solution
for data collection, rules processing, automated matching,
exception management and reporting, helping them manage
derivatives market change. The suite of solutions enables firms
to ensure connectivity to a fast-changing market infrastructure,
increase efficiency for lower operational costs, and reduce risk
to manage regulation and market volatility.
Business overview
Over the past few years, brokerage firms have faced an unprecedented
amount of change to which they urgently need to adapt.
“... the sell side is facing
unprecedented pressures in the
form of constantly declining
commissions, increased costs of
business and regulatory pressures
that threaten their existing business
models and ultimately their survival.”1
Regulation, such as the Dodd-Frank Act or the European Market
Infrastructure Regulation (EMIR), is driving the wholesale
transformation of market infrastructure as it mandates the clearing
of a majority of the over-the-counter (OTC) derivatives by central
clearing counterparties (CCPs). Concurrently, the exchange traded
derivatives (ETD) market is also witnessing changes, with existing
clearing houses frequently updating their systems and exchanges
increasingly taking steps towards vertical integration. Brokerage
firms must therefore ensure connectivity with a number of new
and evolving platforms.
New central clearing regulations governing OTC contracts will
result in an upsurge in the cost of doing business due to a sharp
increase in the amount of collateral required. In the process of
alleviating systemic risk these collateral increases will reduce
the profitability of OTC trading. In addition, due to the rise of
algorithmic and high-frequency trading (HFT), brokerage firms
must manage a dramatic increase in trade volumes without the
associated higher commissions.
There is also a change in the liquidity environment, with liquidity
shifting more towards the derivatives markets from other asset
classes, as derivatives form an increasingly large part of buy side
strategies. This means that brokers will need to rapidly adapt their
operational infrastructure to easily scale up their derivatives
operations, use their assets more effectively and where necessary
consolidate operations.
Together, these changes are stretching the operational and IT
resources of brokerage firms as they strive to complete complex
reconciliation and system validation with increased oversight
from internal and external compliance. Through the adoption
of enhanced automation, brokers will be able rapidly adapt
to market changes and capitalize on new opportunities.
Source 1: Tabb Group – Processing Complexity: Back Office Challenges of Listed Derivatives.
[email protected] 1
SunGard can help
ENSURE CONNECTIVITY
SunGard’s IntelliMatch Operational Control solution suite
provides brokers with a comprehensive reconciliation solution
for data collection, rules processing, automated matching,
exception management and reporting, helping them manage
derivatives market change. The suite of solutions enables firms
to ensure connectivity to a fast-changing market infrastructure,
increase efficiency for lower operational costs, and reduce risk
to manage regulation and market volatility.
1.ENSURE CONNECTIVITY – Establish and execute
effective data integration processes and connections for
OTC CCPs and ETD exchanges to rapidly adapt to market
infrastructure changes.
INCREASE EFFICIENCY
2.INCREASE EFFICIENCY – Improve operational process
effectiveness and accuracy through higher levels of
automation, to manage rising transaction volumes while
minimizing the cost of doing business.
3.REDUCE RISK – Ensure control and audit of
end-to-end reconciliation processes and provide
improved transparency to meet the challenges of
changing regulation and market volatility.
REDUCE RISK
2 www.sungard.com/intellimatch
››IntelliMatch Business Flow Manager reduces the
Solution components
SunGard’s IntelliMatch Operational Control solution suite
consists of the following solution components:
››IntelliMatch Derivatives enables brokers to efficiently
reconcile their ETD and OTC derivatives activity against
exchanges and central counterparties. Through a flexible
reconciliation environment, the solution helps brokers
proactively manage the frequent changes and regulatory
challenges faced by the derivatives market – allowing them
to reduce operational costs, and increase transparency and
control across their reconciliation processes. A constantly
updated library of exchange templates provides rapid
connectivity to new clearing counterparties, while workflows
help automate and improve the efficiency of key business
processes. To enable greater transparency and control, the
solution provides a unique consolidated view of trades,
positions and cash, reducing risk by facilitating the
identification, tracking and resolving of exceptions.
time-consuming and repetitive manual tasks associated
with exception handling via simple web configured workflow
automation. Business flows provide real-time escalation,
assignment and notification of critical issues identified within
the reconciliation and matching process. This enables the
time and costs associated with the escalation of breaks to
be reduced, ultimately ensuring that exceptions are raised
more quickly and passed to the appropriate teams for
resolution. Business owners and business analysts will be
able to easily create or amend flows with minimal training –
eliminating dependencies on IT and consultancy expertise,
and making rule creation an agile and iterative process that
ensures optimal levels of automation, with lower costs and
reduced time-to-market. Four-eyes approval of all workflows,
in addition to a full audit trail of changes, facilitates adherence
to internal and external compliance policies.
››IntelliMatch Trending & Analysis provides critical management
information to support optimization of business rules, resources
and processes. Through the timely identification of inefficiencies,
and by introducing iterative rule changes, brokers can attain
greater levels of automation and associated reductions in
operational risk and cost. Using comprehensive analysis of
manual activities and automated business processes, brokerage
firms can seek to forecast the impact of business events, such
as transactional growth and system upgrades, on staff, systems
and processes, enabling timely preparation for change.
DID YOU KNOW:
The cost of managing complexity through
manual processes is not sustainable. Manual
processes need to be automated not only
to improve efficiency and productivity,
but also to allow for better reporting and
transparency to the investment process
for both internal compliance and
external regulators and investors.2
Firms need to be proactive and address
their processing inefficiencies today in
order to remain competitive. Delaying the
inevitable will leave them at a disadvantage
with competitors, their clients and ultimately
with regulators.3
Source 2 & 3: Tabb Group – Processing Complexity: Back Office Challenges
of Listed Derivatives.
[email protected] 3
1.ENSURE
CONNECTIVITY:
RAPIDLY ADAPT TO
NEW & EXISTING
CLEARING
COUNTERPARTIES
In the wake of the global financial crisis, regulation is radically
transforming the way the OTC derivatives market operates.
Where once they were executed and cleared bilaterally
between counterparties, most standardized swaps, including
both interest rate swaps (IRS) and credit default swaps (CDS),
will have to be executed on registered Swap Exchange Facilities
(SEFs) and cleared centrally through CCPs, with all transactions
reported to central swap data repositories (SDRs). Meanwhile,
the ETD market is also undergoing a period of rapid incremental
change. Driven by a need for competitive differentiation and
increased revenue, exchanges are building new facilities to
provide clearing services that complement their existing
execution services and, in the process, are becoming
a one-stop shop for trading participants.
››OTC derivatives – Brokerage firms require flexibility to
quickly establish connectivity to a number of new market
entities on an ongoing basis in order to centrally clear their
standardized swaps, including both IRS and CDS, through
CCPs. Without this flexibility, their ability to operate in the
OTC market will be undermined.
››Exchange traded derivatives – Frequent changes to clearing
systems require brokerage firms to rapidly adapt in order
to prevent increasing operational costs and risk. Without
the ability to quickly provide connectivity to emerging
exchanges and clearing houses, brokers will compromise
their competitive edge and limit their ability to participate
in commission generating activity from new facilities.
As the OTC market moves towards a more centralized service
and clearing model, corresponding operational processes are
converging with those of ETDs. The operational teams within
brokerage firms are aligning towards a single connectivity
requirement that demands rapid integration with new and
emerging market entities and facilitates simple evolution
of existing channels.
‘I like that I can now easily and
rapidly deploy new or updated
exchange templates.’
Satish Patel, 32
IT systems administrator
4 www.sungard.com/intellimatch
SunGard can help
DID YOU KNOW:
By providing a flexible and efficient reconciliation environment,
SunGard’s IntelliMatch Operational Control solution suite
provides brokers with the ability to rapidly respond to both
the radical transformation of the OTC derivatives market and
incremental changes to the ETD market.
Dealers will need to maintain access to most,
if not all, available clearing houses so that they
can provide their clients with choices. To do so
they’ll have to maintain a network of connections
and interfaces to SEFs and CCPs on one end, and
even more connections back to their buy-side
clients on the other side.4
To ensure connectivity to the derivatives market, and help firms
manage the associated complex reconciliation requirements,
the solution’s flexible architecture enables the efficient
reconciliation of multiple asset classes, from futures and
options to CDS and IRS, on the same platform.
Source 4: Tabb Group – OTC Derivatives Clearing Technology: Bringing the Back Office
to the Forefront.
A comprehensive library of exchange templates supports
data from a wide range of exchanges, clearing houses and
CCPs, enabling the complete reconciliation of trades, positions
and total equity. When the information is available, templates
can additionally capture initial margin, collateral and fees,
providing greater operational control as well as comprehensive
management reporting. Templates are built to support data
in various proprietary and industry formats, and are maintained
by IntelliMatch Operational Control on an ongoing basis to
accommodate future data format changes.
Templates for new exchanges and CCPs can be developed within
rapid timeframes using a standard process that guarantees both
a short time-to-market and template consistency. Templates are
regularly updated in response to mandatory exchange or CCP
changes, or in order to introduce extended data elements such
as collateral value or fees data.
Examples of exchange templates available within
the IntelliMatch Operational Control solution suite
Europe, Middle
East and Africa
EUREX
LCH Clearnet Ltd
ICE Clear Europe
LCH Clearnet SA
MEFF
IDEM
NASDAQ OMX
Americas
CME
ICE Clear US
OCC
Enabling connectivity to new clearing counterparties
Asia Pacific
HKFE/SEHK
ASX Clear
ASX Clear Futures
SGX
TFX
TSE
[email protected] 5
2.INCREASE
EFFICIENCY:
IMPROVE
AUTOMATION
AND ACCURACY
New regulation and tighter internal compliance policies are
increasing operational complexity for brokerage firms. At the
same time increased capital and margin requirements are putting
more pressure on operational teams to reduce costs by:
››Managing growing transaction volumes – High-frequency
trading and greater market volatility have resulted in significant
growth in transactional volumes without a proportional increase in
commission revenues. Brokers must seek to replace highly manual
processes with automated and scalable operational systems to
effectively manage high volumes of transactions.
››Reducing post-trade operational costs – Due to pressure
on commissions and lower interest rates impacting revenue,
brokerage firms are shifting focus towards reducing operational
cost in order to maintain existing margins. By adopting a
centralized operational model for reconciliation and transactional
processing, brokerage firms can succeed in lowering the total
cost of ownership of systems and minimizing costs through
comprehensive end-to-end automation.
››Managing collateral – With the proposed increase in collateral
requirements against OTC derivatives transactions, it is critical
for brokers to ensure the accuracy and validity of initial and
variation margin held against OTC positions. Discrepancies
in collateral and associated positions represent significant
operational or market risk to an organization. Brokerage
firms must seek ways to mitigate against these occurrences
by ensuring early identification and routing of discrepancies
for rapid resolution.
››Controlling fees – As OTC derivatives move into a centrally
cleared model, a new and more complex fee structure will
be applied against transactions. By reconciling fees from
the exchanges, brokerage firms can ensure accuracy of these
fees and guard against potential erroneous excess charges.
DID YOU KNOW:
In 2011, a total of 24.97 billion contracts were
traded across all futures and options exchanges,
an increase of 11.4% on the 2010 figure.5
The complexity of the different cleared and
non-cleared OTC processes and the growth
in processing volumes will strain existing back
office and collateral management systems.
Serious system and procedure upgrading
will be required.6
Source 5: Futures Industry – Annual Volume Survey.
Source 6: Tabb Group – Processing Complexity: Back Office Challenges
of Listed Derivatives.
6 www.sungard.com/intellimatch
The total IM burden for OTC derivatives is
estimated between $1.4 and $2.1 trillion. It will
be the largest part of the total costs of a trade
due to the duration of foregone opportunity.7
Systems that can automate middle and
back office processes will become increasingly
critical, as margins for sell side firms continue
to compress and the buy side continues for
ways to reduce costs.8
Source 7: Tabb Group – Initial Margin for OTC Derivatives: The Burden
of Opportunity Costs.
Source 8: Tabb Group – Processing Complexity: Back Office Challenges
of Listed Derivatives.
SunGard can help
To help manage growing transaction volumes, SunGard’s
IntelliMatch Operational Control solution suite provides an
efficient, flexible reconciliation environment, enabling rapid
data loading, match rule completion and the consolidation of
results. Optimized database design, in-memory matching and
multi-threading for concurrent tasks allow brokerage firms to
process millions of records within short timeframes. Linear
scaling of server infrastructure will also easily accommodate
expanding volumes and business growth without the need to
redesign or rebuild configuration or system architecture.
IntelliMatch Operational Control can be delivered as a
departmental solution or as a centralized reconciliation
platform, enabling brokerage firms to consolidate
multi-site operations into a single location.
To help manage collateral discrepancies, the solution supports
collateral reconciliation, applying comparative logic at either
the summary or position level and incorporating criteria such
as notional value and haircut.
To help control fees, the solution enables brokers to automatically
compare the charges from each exchange against values
calculated within the back-office. Persistent errors associated
with particular instruments or exchanges, such as rate differences,
which result in reoccurring discrepancies, can be quickly identified
and resolved to prevent similar subsequent occurrences.
To reduce operational costs, comprehensive match rules ensure
the highest possible levels of automation. Optimally high match
rates, across one-to-one, one-to-many, many-to-many, three-way,
permutation, candidate, single item, tolerance, proposed
and learned matching, will result in fewer exceptions and
significantly reduce operational costs. Reconciliation-driven
workflow will automate costly, error-prone and repetitive
manual steps for escalation, assignment and notification.
‘Using automated business workflows,
trade breaks can now be escalated to the
appropriate team for faster resolution.’
Andrew Jackson, 43
operations manager
Automation and control of business processes
3. REDUCE RISK:
MINIMIZE
OPERATIONAL
RISK AND
IMPROVE
COMPLIANCE
The Dodd-Frank and EMIR regulations have resulted in
a significant emphasis on greater operational control, in
particular the management of positions and exposure. There
is now a growing need for brokerage firms to introduce more
sophisticated reconciliation processes to reduce operational
risk, improve real-time control of positions and support
increased reporting requirements.
Furthermore, in today’s volatile financial market, where rapid
swings in contract prices can result in large losses, brokers
must apply greater oversight over key operational processes.
Validated and accurate positions must be assured at all times
through consistent and regular reconciliation.
Brokerage firms that are able to provide timely and critical
position level information can, by efficiently processing and
summarizing high transactional volume, facilitate internal
and external compliance.
Brokers must provide strategies to:
››Increase transparency – Information regarding potential risks,
trade or positions discrepancies, and time-critical exposures
must be captured quickly and presented to appropriate
operational staff in order to resolve unnecessary risks before
they materialize. With increased visibility into end-to-end
operational processes, all potential risks can be quickly
identified early in the transactional lifecycle.
››Satisfy control and internal audit requirements – Firms need
to strengthen their internal audit requirements by replacing
spreadsheet-based processes with automated solutions that
audit user actions, clearly define access to information and
control duties. With auditors requiring historical reconciliation
results from their automated reconciliation system, it is also
vital to generate and archive such reports on a regular basis
as well as to record manual actions by reconciliation users.
››Optimize business processes – It is critical for brokerage firms
to put in place procedures and processes that will ensure that
operational efficiencies achieved through process automation,
continue to deliver value over time. Through analysis of key
business and operational metrics, firms can iteratively refine
rules and business workflows to provide consistent operational
performance and reduce risk.
‘Using the summary screen
I can immediately see which
exchanges and accounts have
not been fully reconciled and
drill-down into the individual
transactions to understand why.’
Mary Peters, 52
operations analyst
8 www.sungard.com/intellimatch
SunGard can help
DID YOU KNOW:
For greater transparency, SunGard’s IntelliMatch Operational
Control solution suite provides a dynamic summary screen,
consolidating cash, positions, trades and margin across all
clearing counterparties and instruments, including ETD and
OTC derivatives. The impact of reconciliation discrepancies can
be quickly ascertained and responded to with immediate access
to underlying securities and cash information at a detailed level.
Event-based workflows ensure that high risk elements are
escalated to appropriate individuals and flagged accordingly
for immediate response.
Business process optimization was ranked as
the most valuable addition to a reconciliation
solution suite.9
Source 9: TowerGroup – Enterprise Reconciliation: Meeting the Operations
and Technology Challenges.
For control and internal audit purposes, all manual actions are
audited and user privileges can be fully customized to ensure
appropriate access to sensitive information and control
availability of key functions, such as account signoff. Standard
reconciliation reporting captures key compliance data including
audit trails, reconciliation approval and exception details.
To optimize reconciliation processes, firms can track, over time,
the effectiveness of staff, system rules and business processes
across their derivatives operations. Through alerts and analytics,
brokers can ensure continued efficiency across the entire
reconciliation environment and identify patterns in their data,
such as the relative frequency of breaks across different
customer accounts.
Consolidated view of cash, positions and
trade reconciliations
[email protected] 9
ABOUT INTELLIMATCH OPERATIONAL CONTROL SOLUTION SUITE
SunGard’s IntelliMatch Operational Control provides brokers with a comprehensive reconciliation
solution for data collection, rules processing, automated matching, exception management and
reporting, helping them manage derivatives market change. The suite of solutions enables firms
to ensure connectivity to a fast-changing market infrastructure, increase efficiency for lower
operational costs, and reduce risk to manage regulation and
market volatility.
ABOUT SUNGARD
SunGard is one of the world’s leading software and technology services companies. SunGard
has more than 17,000 employees and serves approximately 25,000 customers in more than 70
countries. SunGard provides software and processing solutions for financial services, education
and the public sector. SunGard also provides disaster recovery services, managed IT services,
information availability consulting services and business continuity management software. With
annual revenue of about $4.5 billion, SunGard is the largest privately held software and services
company and is ranked 480 on the Fortune 500.
Look for us wherever the mission is critical.
For more information:
email: [email protected]
visit: www.sungard.com/intellimatch
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