Capital Markets Target Operational Risk

Terry Flanagan

The capital markets are keen on reducing the risk of failures in post-trade processing, such as matching and confirmations, and are building out capabilities for doing so.

New regulations like Dodd-Frank, MiFID II and Emir are expected to have a marked impact on post-trade processing.

“The uncertainty is having a major impact on firms that have not traditionally been under regulatory oversight,” Jeffrey Wallis, managing partner of SunGard Global Consulting Services, told Markets Media. “A great deal of work is required to interpret the impact of the regulatory agenda and its impact on their business, technology and operations. This is particularly the case for swap dealers and major swap participants defined under Dodd-Frank’s Title VII and corresponding Emir directives.”

Changes in the regulatory environment over the next few years are going to significantly impact almost all aspects of post-trade operations and operational risk management.

“New systems and process flows are going to be required,” Kiri Self, chief executive of TRG Post Trade Services, told Markets Media. “OTC Clearing will involve a much improved collateral management system at all firms affected.”

TRG is providing consultancy and implementation services with London Stock Exchange Group’s (LSE) compliance and post-trade services platform, UnaVista, with the goal of meeting a wider range of client operations and risk needs.

Through UnaVista, LSE provides regulatory reporting, reconciliation, matching and compliance services to reduce operational risk. TRG provides operational risk management consultancy services, helping customers to deal with regulatory reporting and change, compliance and reconciliation issues by providing audit services, advice and implementation services.

“This partnership creates a full end-to-end suite of services and solutions to clients to help reduce their operational risk,” said Self. “We partner with the London Stock Exchange as they have a strong history of helping the industry by removing operational inefficiencies, with UnaVista directly meeting these challenges and providing a best of breed solution to their clients.”

FIX Protocol Limited (FPL) has published FIX guidelines to enhance the global equity post-trade process between the buy-side and sell-side. The guidelines, which were produced by the FPL Americas Buy-Side Working Group, and cover post-trade processing for both US and non-US equity markets.

FIX is used extensively for equity order placement, and in response to requests from the investment management community, and FPL is keen to promote adoption to support equity post-trade processing. Adoption will enable the industry to benefit from increased straight-through-processing, improved availability and enhanced transparency through ID-linked traceability from placement to pre-settlement.

Many parties must co-operate in the post-trade process including the buy side, broker dealers, custodian banks and central clearing.

“The current process is complex and requires considerable human intervention,” said David Tolman of Greenline Financial Technologies. “The FIX infrastructure, knowledge and data, from the extremely successful use of FIX in order processing, can now be leveraged in the post-trade process. “

Extending the use of FIX substantially reduces complexity in the communication and matching process, resulting in fewer matching issues, faster processing and lower costs, Tolman said. The availability of an industry standard will reduce implementation and on-boarding time, and the associated financial investment.

Promoting FIX adoption for post-trade processing is consistent with the recommendations set forth in the widely adopted Investment Roadmap, which FPL produced in collaboration with other standard bodies to support business processes throughout the trade lifecycle.

FPL noted that Omgeo, a joint venture of Depository Trust & Clearing Corporation and Thomson Reuters, supports post-trade services through OASYS (to communicate and match allocations) and TradeSuite (to communicate confirmations, match affirmations and pass affirmed trades).

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