The Elusive Centralized View of Operations

Terry Flanagan

Transparency has been a key initiative for capital markets firms for more than a half-decade now, as regulators and clients alike want more information.

But the move to openness doesn’t come easily. Obtaining a centralized view of a company’s trading, operations, surveillance, compliance and risk management activities entails navigating through multiple systems, both vendor-based and in-house, each of which has its own data structures.

Travis Schwab experienced this problem first hand as chief executive of RGM Securities, an Austin, Tex.-based quantitative proprietary trading firm. The experience led him to create the intellectual property that got spun off from RGM as Eventus Systems, whose Validus platform enables risk managers and compliance officers to monitor the health of a trading enterprise.

The goal is to reduce financial, regulatory, counterparty, operational and technology risk. “The biggest pain point is visibility into what is happening in any type of trading enterprise,” Schwab told Markets Media. “Compliance people are responsible for the complete view, when it comes to their regulatory requirements. But the information, and the way to report on it, is not there.”

The problem is that front-, middle- and back-office systems consume data from multiple sources, and the compliance officer’s task is to then take the outputs from these systems and attempt to weave them into a single comprehensive view, a burdensome task.

Travis Schwab, Eventus

Travis Schwab, Eventus

Eventus Systems’ platform, Validus, is designed to tackle the problem from the other direction, by taking trade data, reconciling it, and then using it to build an enterprise view from the bottom up, thereby bypassing these multiple systems.

“This was the application I wanted when I was running my broker-dealer,” said Schwab. “When I was running a broker-dealer, I had five different solutions in the various areas. That, to me, is risky. I can reduce risk by putting all of the information that I need in a central spot that I can monitor, alert, and report on.”

He added, “This is an external view. The data has already been reconciled. That, to me, is the biggest thing: getting a wide but validated view of what is happening within your enterprise.”

For board members, executives, risk managers and compliance officers, who are the key stakeholders for their organization’s governance, it’s vital that they be provided with a way to monitor the enterprise on a real-time basis. This is made difficult because each of the departments within the firm uses its own systems and speaks its own language.

“Technology and trading are areas of an organization where compliance needs to have visibility, but they often have a hard time speaking the language,” said Eventus president Jeff Bell. “They often have a hard time getting access, and they often have a hard time correlating all that data together.”

The core of Validus is “multi-stream data reconciliation,” a process for capturing and organizing data flows and then reconciling, transforming and ‘pipelining’ that data in order to accurately report on risk.

“We take a trader’s order, match it up with the exchange drop, match it up with the clearing firm drop, or an NSCC record,” said Bell, a former head of clearing at Wedbush Securities and a former CEO of Lime Brokerage, which Wedbush acquired in 2011. “That combined record is the foundation of Validus. From there, with a pure data set, we can give the chief compliance officer, chief risk officer, or head trader–somebody who has their license on the line–the ability to monitor see the health of their environment.”

Prop firms and the sell-side broker-dealers that support them are the initial target audience for Validus, which officially launches on May 1. “It is the clearing firms, the executing brokers and proprietary trading firms of size and scale to where this would be valuable to them,” Schwab said. “It is probably not going to resonate with a two-person shop. It is going to resonate with some of the bigger names who have a higher exposure and who have invested in having a regulated entity.”

Featured image by only4denn/Dollar Photo Clun

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