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Post-trade malaise in managing exceptions

With regulatory bodies around the globe placing ever increasing emphasis on operational risk for derivatives (both ETD and OTC), it seems that many enterprises in this market place have still to get to the optimum position.

Why is this?

A recent conversation with a senior manager at a global Tier 1 investment bank revealed that dealing with post-trade exceptions is still a challenge, partly because there’s often something more high profile in which to invest and partly because any problems are solved with either more human resource or by relying on email and spreadsheets.

Whilst this approach appears to provide a short term fix, operations and client services teams quickly become swamped with emails, client service levels can drop off and operational risk increases.

Sometimes there are other, more obscure reasons why this area is not addressed. Initiatives to improve reconciliations and exception management for derivatives, such as futures and options, may be widened into strategic initiatives involving all asset classes or into more general business process workflow requirements. This often leads to much larger budgets, more interested parties (with different views of what’s required) and long implementation projects.

Agile exception management is perfectly possible with enterprise class solutions, applied judiciously and fast to problematic areas. By adopting an agile, one-bite-at-a-time approach brokers can start to realise the benefits such as:

  • Having all exceptions quickly identified and controlled in a single place
  • Knowing instantly the status of any trade break
  • Providing a professional, client facing view of their post-trade exceptions and status
  • Underpinning multi-office processes with a single, uniformly enforced business process workflow, with audit trails, security and escalation
  • Meeting client service level expectations or obligations
  • Decreasing operational risk

To quote the fabled Chinese proverb, “The journey of a thousand miles must begin with a single step.”