Thunderhead.com

Transcription

Thunderhead.com

THUNDERHEAD.COM
Trade Documentation Solutions
THUNDERHEAD.COM: Trade Documentation Solutions
1
Automating trade documentation processes has long been a challenge for financial market participants looking
to increase rates of straight-through-processing (“STP”) and reduce operating costs. Emerging regulation
for the over-the-counter (“OTC”) derivative markets demands even greater controls for pre- and post-trade
documentation.
Thunderhead.com have responded to market demand and technology trends by developing an innovative
cloud-based Software-as-a-Service (“SaaS”) model that provides their clients with a product roadmap that will
reduce costs, promote greater operating efficiencies and controls and provide solutions to ongoing regulatory
requirements through a utility-based workflow.
In this paper, Sapient Global Markets consider the benefits of the Thunderhead.com roadmap and explore the
challenges it must overcome to achieve requisite successful product adoption.
2
Contents
Introduction4
Product Vision5
Technical Feasability9
Conclusion10
3
INTRODUCTION
Against a backdrop of increased regulatory scrutiny and
budgetary constraints, participants in the OTC derivative
market continue to seek ways to address the high cost
and low automation levels associated with the paper trade
documentation lifecycle.
Whilst paper volumes have decreased in the last five years
(the OTC market saw a 39%1 increase in electronic trade
volume between August 2006 and December 2011), overall
trade volumes are still over 30,000 trades per month for
G152 firms, proving that there is still a significant population
of trades that require paper documentation.
In parallel to a drive for greater efficiency, global regulators
are striving for more transparency within financial
markets, with G20 commitments requiring a greater
degree of product, process and legal standardisation for
OTC derivatives. The result of these combined efforts is
that, in spite of the steady climb in the level of market
standardisation, firms are still faced with maintaining
a greater operational support cost. This was evidenced
by the 2011 ISDA Operations Benchmarking Survey
which juxtaposed an increase in automated processing
alongside significant growth in the ratio of Front Office to
Confirmations resource3.
A scenario where paper volumes are falling and operations
headcount rising suggests a critical lack of automation
within the operational paper trade processing function.
This observation is supported by recent figures from ISDA
that show averages for both confirmation generation and
matching still at 50% or below4.
High costs and lack of automation for trade documentation
is not a new problem and industry service providers have
long considered a delivery model to provide a centralised
solution to the paper workflow. Such a service could enable
online collaboration for paper documentation workflow
and allow participants to share the cost of ownership and
maintenance of a central infrastructure. Traditionally,
the upfront costs and user adoption challenges of such
solutions have been a deterrent and, despite the obvious
benefits, there remains no central market utility for paper
trade documentation processing.
Thunderhead.com have recently announced a long-term
strategy to transition its documentation and communication
service to a cloud-based Software as a Service (“SaaS”)
model. The evolution of the platform will follow a practical
roadmap towards a central market infrastructure that
would, in essence, provide its clients with a single
environment to create, execute and manage all of their
trade and relationship documents in a manner that meets
emerging regulatory requirements, can yield greater
operational efficiencies and an overall reduction in costs.
Ultimately, the success of a trade documentation SaaS
offering will largely be determined by market adoption
which is driven by (i) the benefits associated with the
product vision and (ii) underpinned by the feasibility of
the technical solution. In this document Sapient Global
Markets, will consider these two specific challenges to
ascertain whether the evolution of Thunderhead.com
represents a legitimate and compelling solution to today’s
trade documentation challenges.
With market participants under greater scrutiny to reduce
their discretionary infrastructure spend (capital market
firms’ budget for maintaining their own technology
hardware has reduced by 47% in 20125), and regulations
continuing to require further processing efficiency,
organisations must consider how they can insulate
themselves against additional headcount and infrastructure
costs.
4
PRODUCT VISION
Can it reduce costs, introduce efficiencies and improve controls?
Thunderhead.com is a documentation and communication
platform currently used by 14 of the G15 investment banks
and large energy and commodities houses. The broadly
adopted Thunderhead NOW software enables users to
generate cross-asset trade documentation for both paper
and electronic channels, such as DTCC / FpML, ICE and
EFET. All instances of the software are locally installed and
subsequently maintained on premise at the client.
Recognising the high cost and low automation levels of
the paper trade workflow, Thunderhead.com is launching
their ONE-Platform, a SaaS facility that will enable
cross-industry document collaboration across all market
participants (dealers, buy-side and legal firms). The service
is intended to support the full documentation lifecycle
through the drafting, negotiation and approval of trade and
relationship documents.
As with the introduction of any new market utility,
successful integration of the product will be dependent on
securing a broad client adoption. In assessing the ability of
Thunderhead.com to engage that critical mass, we have
identified the following key determinants of success:
• Can it reduce costs?—will a move to the Thunderhead.
com ONE-Platform reduce operational expenditures
for the user?
• Will it improve operational efficiencies?—will the
ONE-Platform improve operational performance for
the paper documentation processing workflow?
Can it Reduce Costs?
The first step in the Thundhead.com product development
will be the transition of users to a SaaS operating model.
The infrastructure diagram in Figure 1 demonstrates
the transition away from locally hosted instances of the
Thunderhead.com platform that firms maintain into a
central environment.
Since there are clear and tangible benefits associated with
cloud-based technology, Thunderhead.com is targeting a
move to a SaaS model as a way of achieving:
• A reduction in the total cost of ownership (“TCO”) for
operating their solution of up to 20% per annum.
This estimate will be dependent on the scope of
implementation and usage.
• On demand capabilities provided in the SaaS model for
which users are charged per-service adopted.
• A significant reduction (typically 70%+) in the time to
market for the creation and management of trade
documentation and an associated reduction in IT
spend.
• Shared cost of application maintenance across multiusers and a removal of the need to own and operate
individual hardware.
• Can it provide a solution to regulatory
requirements?—will the Thunderhead.com product
roadmap provide a solution to the long-term problems
of ensuring compliance with regulatory requirements
around transactional and pre-trade documentation?
5
Figure 1 – Phase 1 – Move to a SaaS Model
Will it Improve Operational Efficiency?
The current bilateral negotiation process around both trade
and pre-trade documentation includes a certain amount of
control risk. In effect, the operational performance of firms
is governed by that of their counterpart so providing access
to centrally maintained and pre-built industry-standard
documentation templates via a product utility could
enhance the efficiency of the paper review process.
Recent studies have demonstrated a rise in the adoption of
cloud technology for business operations amongst buy-side
investment management companies6. The prevalence of
adoption amongst these firms suggests that the buy-side
counterparts recognise the benefits of cloud technology as
a long term progression for financial application hosting.
Additionally, the target of an improved level of business
efficiency remains the key driver for a move to SaaS
technology7.
Given the regulatory scrutiny that financial market firms are
under, utility adoption will be largely governed by the extent
to which any central platform can provide stringent security
controls around its role as a custodian of customer data.
Thunderhead.com have developed their SaaS solution in
accordance with industry security best practices and the
infrastructure has been architecturally designed to meet
the major PCI-DSS and ISO27001 compliance standards.
Figure 2 represents the Thunderhead.com infrastructure
evolution towards a central document collaboration service.
In addition to the PDF generation of trade documentation,
any such central collaborative environment should provide
users with a trusted source record that can preserve
structured data and documents in an electronic (XML)
format. Thunderhead.com will deliver market infrastructure
where users can collaborate on a single source of truth
record and in turn, provide those users with secure access
to that XML structured data so it can be seamlessly and
consistently integrated into downstream collateral, pricing
and risk systems.
6
Central document collaboration will also enable a full
audit trail from the point of inception through the entire
trade document life cycle. The new collaborative service
will be able to provide ongoing analytics-based visibility of
the complete documentation process which should help
industry users understand how templates are being used
within the central system and where the market is deviating
from the standard—and why.
Can it Provide a Solution to Regulatory
Requirements?
Industry regulators are committed to driving market
standardisation and bringing transparency and
accountability to capital markets. There are a number of
regulatory requirements associated with the full trade
documentation lifecycle:
Pre-Trade relationship Documents
The Dodd-Frank Act and the European Market
Infrastructure Regulation (“EMIR”) requires that clearing
brokers must enter into separate legal agreements with
a central counterparty (“CCP”). Each CCP will require a
separate set of membership documentation that users will
need to negotiate. The industry is mandating a move to an
electronic representation of a Standardised Collateralised
Service Agreement (“SCSA”). Central maintenance of
pre-agreed template documentation would provide
platform users and invited clients access to standard terms
definitions.
Figure 2 – Phase 2 – Move to Document Collaboration
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Pre-trade or “relationship” documentation covers Legal
Master Agreements (ISDA, as well as local agreements
such as Rahmenvertrag, AFB, Swiss Master); Credit
Support Annex and Portfolio Swap Agreements, as well as
any Client On-boarding or Credit Risk documentation. As
noted above, industry drivers around these documentation
types would include the move to a Standardised
Collateralised Service Agreement. There is scope for a
central collaboration tool to support the negotiation and
introduction of such standard templates. At present,
upon ratification, firms are required to adopt templates
and definitions independently within their own systems
infrastructure. The SaaS utility could enable immediate and
consistent access to that standardised documentation for
all platform users.
Transactional Documents
Under the Dodd-Frank Act, the CFTC Pt. 75 FR 81519
(Confirmation, Portfolio Reconciliation and Portfolio
Compression) all Swap Dealer (“SD”) and Major Swap
Participant (“MSP”) trades are to be confirmed on
T+0. Given the high transactional volume per full-time
equivalent (FTE) statistics and current cross-asset
performance for confirmations outstanding, firms will likely
need to undertake large-scale process and/or FTE resource
changes to ensure compliance.
timeframe. The Dodd-Frank Act alone introduced 29 rules
to provide this transparency to the OTC market.
Under the Dodd-Frank Act (Pt.45), all SD and MSPs
will need to submit confirmations to the Swap Data
Repository (“SDR”) within 24 hours. Furthermore, 180
days after compliance, the CFTC has stated that all paper
confirmations must be submitted electronically. For
confirmation submissions, regulated participants users
must submit (either directly or via a third party middleware)
a PDF version of the document (with an electronic wrapper
for the purpose of linking to previously electronically
submitted Real Time and Primary Economic Term data)
to the SDR. Those users must submit that confirmation
record in a full electronic version. The central Thunderhead.
com platform will generate an XML version of the trade
confirmation and, as such, there is scope for the platform
to transform that XML message to SDR compliant FpML
(FpML version 5.3) and submit it on behalf of the reporting
party to satisfy the 180 day post compliance ruling.
In addition to trade confirmations, OTC transaction data can
include Term Sheets, Broker Notes and Post Trade Event
Documentation, such as trade increases, terminations,
corporate actions and novations. Outside of the OTC
space, there would be regulatory drivers associated with
Securitised Documentation (including Securitised Term
Sheet, Final Terms Prospectus, and Listing Documentation)
and Fund Manager Documentation, (including: Key Investor
Information Document (UCITS – Regulated Fund)) against
which users must be compliant.
As introduced earlier, a central collaborative utility could
help industry participants bring together and rationalise
trade flow across operational, business and legal
functionality. There are a number of avenues whereby the
scope of a document collaboration tool could be expanded
so as to encompass multiple business opportunities. One
such example is the regulatory reporting of swap data.
Regulatory bodies are striving to obtain more accurate
transaction level data within an increasingly aggressive
8
TECHNICAL FEASIBILITY
Is it as (or more) secure, stable and performant as my existing infrastructure?
The use of cloud technology within the financial markets
is growing in popularity as more institutions begin to
recognize the flexibility and cost-cutting advantages of this
alternative central data infrastructure. SaaS is a delivery
model through which cloud computing can be deployed
and whereby software and its associated data are centrally
hosted and accessed via the web.
SaaS technology has already been successfully embedded
in other market sectors. Google Docs and Salesforce.
com are two examples where SaaS technology has been
successfully adopted allowing firms a secure, real-time
connection with their users and employees. There has been
adoption within capital markets also, with industry utility
providers, such as CME ClearPORT OTC Data On-demand
and NYSE Euronext Capital Markets Community Platform,
successfully adopting a cloud-based SaaS model. As with
any technological solution, growth and adoption will always
increase as more strategic opportunities emerge.
There has been a natural progression to a SaaS architecture
and the benefits of this form of technology are well
documented:
• SaaS technology offers users on-demand application
software which provides central data storage that
is accessible remotely and eliminates the need to
physically install hardware.
• System capabilities can be accessed on a pay-per-use
model. Users can reduce their capital expenditure
requirements by only paying for actual system resource
usage and tailor their use of services in line with
operational budgets.
• Cloud technology enables ease and speed of
deployment giving utility users access to the latest
software updates in line with any amendments to
market regulations and compliance.
• Multi-tenancy enables the sharing of pooled resources
and costs across a number of users.
However, the adoption of SaaS technology within financial
services is not without challenges:
• There are concerns around the security and privacy of
data in the cloud-based environment. In an increasingly
scrutinised regulatory market, any loss of data or
compromise of data could lead to reputational or
financial implications for the platform user.
• IT users may also be concerned about the availability
of applications hosted on the cloud-based SaaS model
and the impact of any system outage.
• Any SaaS environment would need to demonstrate
scalability and flexibility and adapt to client demands
with respect to functionality supports. Users would
need to develop interfaces to access the utility services
and if the user needs to shift to another cloud-based
vendor, the cost of switching interfaces could negate
the advantages of moving to a SaaS model in the first
place.
If financial service firms can leverage the successful
integration of cloud-based SaaS technology from other
market sectors, adoption of the model within this market
could truly be a natural progression. Given the regulated
demands and user sensitivity around data accuracy and
timeliness, it is key that resilient security measures can be
provided by any vendor. If this assurance around being a
custodian of confidential client information can be provided,
more and more organisations within the financial services
market should be able to reap the benefits of speed, agility
and potential cost savings that the service can provide.
The U.S National Institute of Standards and Technology (NIST) deﬁnes cloud computing as “a payper-use model for enabling available, convenient, on-demand network access to a shared pool of
conﬁgurable computing resources (e.g., network, servers, storage, applications and services) that can
be rapidly provisioned and released with minimal management effort or service provider interaction.”
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CONCLUSION
If firms are going to insulate against the regulatory
challenges of improved processing efficiencies, investment
in the automation of the paper documentation workflow
would seem inevitable. As efforts to standardise the
financial markets continues at a pace, there is a clear need
for a more streamlined and cost-effective solution. If the
Thunderhead.com ONE-Platform can achieve mass user
adoption, this central infrastructure utility could provide an
agile and scalable solution to the current market challenges
of cost, control and compliance.
Cloud-based SaaS technology is a natural progression for
financial service firms to adopt and we are seeing a growing
uptake of this technology within capital markets. Though
providing assurance over the security of customer data
will remain a principal barrier to overcome, the successful
integration within other market sectors should provide a
blueprint for those within the financial markets to benefit
from the potential cost savings, speed and flexibility of the
SaaS deployment model.
A lack of automation in the paper documentation workflow
is not a new problem. However, high up-front capital
expenditure and time to market have impeded the creation
of a central utility solution. Thunderhead.com are targeting
a significant 20% TCO reduction through a transition to a
central SaaS utility and an additional 70% reduction in the
time to market for the creation and management of trade
documentation and templates. Central collaboration can
provide a move away from the current model of processing
operational, business and legal documentation in silo. In
turn, this can offer improved efficiency and effectiveness
of those inter-business processes and may provide an
additional reduction in operational support costs.
Thunderhead.com have demonstrated flexibility within their
product roadmap which could help firms in their response
to regulatory challenges in the pre-trade, transaction
and reporting workflows. Collaboration on the ONEPlatform will give users access to structured XML data
for all trade lifecycle documentation. This automation of
information access is key as firms look to respond to the
regulatory demands of more accurate and more timely data
provisioning.
Thunderhead.com have the opportunity to penetrate
across dealer, buy-side and legal communities with this
product offering. Mass adoption from those client segments
can further drive down the shared cost of infrastructure
maintenance but also allow the evolution of the utility to
meet the growing needs of that broad client base. Engaging
those clients now is vital. Shaping product development
in response to client demand is key for any utility provider
looking to embed themselves as market practice. Proactively forming industry partnerships to help foster the
growth of the utility will go a long way to establishing the
Thunderhead.com ONE-Platform as a recognised solution
in streamlining the paper trade documentation lifecycle.
To provide further details around the intended product
development roadmap and the assurances around the security
and scalability of the system, Thunderhead.com is inviting firms
to define a tailored business case to guide their prospective
use of the ONE-Platform. For more information, please contact
Michael Robertson ([email protected]) and Jude Bly
([email protected]).
The Thunderhead.com utility would provide a secure and
stable environment on which users can collaborate on
the documentation lifecycle. Access to a single version of
software and standards around the paper workflow not
only helps negate bilateral negotiation control risk, it also
provides greater certainty around the information that firms
are feeding back into their respective downstream systems.
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Footnotes
1 Percentage not volume weighted – figure is electronic trade volume as a percentage of total volume across the credit,
equity and rates markets between August 2006 and December 2011
2 G15 refers to the group of 15 global investment banks that committed to a series of commitment letters to the regulatory community that typically represents a majority portion of market activity for OTC derivatives
3 Source: 2011 ISDA OBS Survey. Interest rate derivative = 3.8 (3.3 in 2010); Credit derivatives = 3.8 (3.4 in 2010)
4 Source: 2011 ISDA OBS Survey. Average for Confirmation generation is 50%; Average for Confirmation matching is 45%
5 Source: TABB Group, Reinventing Capital Markets Infrastructure, April 2012
6 Source: Eze Castle Integration. Of 125 hedge fund and investment management firms surveyed, 79% of respondents are
currently using cloud-based technology
7 Source: Forrsights Software Survey, Q4 2011. 72% of respondents suggested that “improved business agility” was the
most important factor in their move to SaaS technology
About Thunderhead.com
Thunderhead.com is the leading provider of Capital Markets industry solutions for automating the complete trade
documentation life-cycle, meeting the demanding requirements for highly complex OTC trades, including both financial
and physical commodities. Used by 14 of the G15 global derivatives dealer institutions, Thunderhead.com is the de facto
standard for OTC trade confirmations and term sheet generation. Thunderhead.com solutions are available as cloudbased SaaS services or as on-premise enterprise software.
Thunderhead.com is headquartered in London (UK), and services its global customer base from offices located in North
America, Europe and Asia Pacific.
For more information visit thunderhead.com
About Sapient Global Markets
Sapient Global Markets, a division of Sapient® (NASDAQ: SAPE), is a leading provider of services to today’s evolving
financial and commodity markets. We provide a full range of capabilities to help our clients grow and enhance their
businesses, create robust and transparent infrastructure, manage operating costs, and foster innovation throughout their
organizations. We offer services across Advisory, Analytics, Technology, and Process, as well as unique methodologies
in program management, technology development, and process outsourcing. Sapient Global Markets operates in key
financial and commodity centers worldwide, including Boston, Chicago, Houston, New York, Calgary, Toronto, London,
Amsterdam, Düsseldorf, Geneva, Munich, Zurich, and Singapore, as well as in large technology development and
operations outsourcing centers in Bangalore, Delhi, and Noida, India.
For more information, visit sapientglobalmarkets.com.
© 2012 Sapient Corporation.
Trademark Information: Sapient and the Sapient logo are trademarks or registered trademarks of Sapient Corporation or its subsidiaries in the U.S.
and other countries. All other trade names are trademarks or registered trademarks of their respective holders.
11
Global Offices
Amsterdam
Prins Bernhardplein 200
1097 JB Amsterdam
Netherlands
Tel: +31 (0) 20 330 0011
Düsseldorf
Speditionstrasse 21
40221 Düsseldorf
Germany
Tel: +49 (0) 211 540 34 0
Munich
Arnulfstrasse 60
80335 München
Germany
Tel: +49 (0) 89 552 987 0
Bangalore
Salarpuria GR Tech Park
6th Floor, “VAYU” Block
#137, Bengaluru 560066
Karnataka
India
Tel: +91 (080) 410 47 000
Geneva
Succursale Genève
c/o Florence Thiébaud, avocate
rue du Cendrier 15
1201 Geneva
Switzerland
Tel: +41 (0) 58 206 06 00
New York
40 Fulton Street
22nd Floor
New York, NY 10038
Tel: +1 (212) 206 1005
Boston
131 Dartmouth Street
3rd Floor
Boston, MA 02116
Tel: +1 (617) 621 0200
Houston
Heritage Plaza
1111 Bagby Street Suite 1950
Houston, TX 77002
Tel: +1 (713) 493 6880
Calgary
888 3rd Street SW
Suite 1000
Calgary, Alberta T2P 5C5
Canada
Tel: +1 (403) 444 5574
London
Eden House
8 Spital Square
London, E1 6DU
United Kingdom
Tel: + 44 (0) 207 786 4500
Chicago
30 West Monroe,
12th floor
Chicago, IL 60603
Tel: +1 (312) 458 1800
Los Angeles
1601 Cloverfield Blvd.
Suite 400 South
Santa Monica, CA 90404
Tel: +1 (310) 264 6900
Singapore
Air View Building #02-01
2 Peck Seah Street
Singapore 079305
Republic of Singapore
Tel: +65 (3) 104 5308
Toronto
129 Spadina Avenue
Suite 500
Toronto, Ontario M5V 2L3
Canada
Tel: +1 (416) 645 1500
Zürich
Seefeldstrasse 35
8008 Zürich
Switzerland
Tel: +41 (58) 206 06 00
Delhi
Towers D & E,
DLF Cyber Greens
DLF Phase III
Sector 25-A
Gurgaon 122002
Haryana
India
Tel: +91 (124) 416 7000
BAL MARKETS 1
12

Thunderhead.com

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