INTELLIMATCH OPERATIONAL CONTROL Manage market change

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1 INTELLIMATCH OPERATIONAL CONTROL Manage market change

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3 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

4 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

5 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. 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. IntelliMatch Business Flow Manager reduces the 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. 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

6 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

7 SunGard can help 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. 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. DID YOU KNOW: 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 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 Enabling connectivity to new clearing counterparties Europe, Middle East and Africa Americas Asia Pacific EUREX CME HKFE/SEHK LCH Clearnet Ltd ICE Clear US ASX Clear ICE Clear Europe OCC ASX Clear Futures LCH Clearnet SA SGX MEFF TFX IDEM TSE NASDAQ OMX [email protected] 5

8 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 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 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 5: Futures Industry Annual Volume Survey. Source 6: Tabb Group Processing Complexity: Back Office Challenges of Listed Derivatives. 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. 6

9 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

10 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

11 SunGard can help 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. DID YOU KNOW: 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

12 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 protected] visit: AMERICAS BOSTON, MA NEW YORK, NY PARSIPPANY, NJ WAYNE, PA SAO PAULO, BRAZIL AUSTRALIA/NEW ZEALAND MELBOURNE, AUSTRALIA PERTH, AUSTRALIA SYDNEY, AUSTRALIA CHRISTCHURCH, NEW ZEALAND WESTERN EUROPE GENEVA, SWITZERLAND LONDON, UK WINTERTHUR, SWITZERLAND ZURICH, SWITZERLAND ASIA BEIJING, CHINA HONG KONG, HONG KONG SAR JAKARTA, INDONESIA KARACHI, PAKISTAN KUALA LUMPUR, MALAYSIA MANILA, PHILIPPINES SHANGHAI, CHINA SINGAPORE EASTERN EUROPE BELGRADE, SERBIA BRATISLAVA, SLOVAKIA NORTH AFRICA TUNIS, TUNISIA 2012 SunGard. Trademark Information: SunGard, the SunGard logo and IntelliMatch are trademarks or registered trademarks of SunGard Data Systems Inc. or its subsidiaries in the U.S. and other countries. All other trade names are trademarks or registered trademarks of their respective holders.