Reconciliation Technology ‘Explosion’ in Europe & U.S., Says Aite
No longer is reconciliation technology “solely applied” to reconciling cash accounts.
That’s the word from market research firm Aite Group’s latest report, “Reconciliation Technology Solutions in 2014: Recs Get Ready to Rumble,” which also takes note of the “explosion in the number of different vendor solutions and deployment models on the market over the last few years.”
The report finds that, “as vendors and incumbents expand their offerings to cover an increased range of functions, they’re now being used in other areas, such as derivatives.”
Partly as a result of that expansion, global reconciliation spending is expected to reach $1.13 billion by 2015 and $1.27 billion by 2017, according to Aite.
The percentage of reconciliation clients on a global scale has increased in Europe from 44 percent in 2011 to 45 percent in 2013, but fallen in North America from 37 percent in 2011 to 30 percent in 2013, says Aite, attributing the swings to the “introduction of European regulation directly targeted at the buy-side,” compared to North American markets, that “have seen comparatively less direct regulation of this sector.”
Aite also points to software-as-a-service and outsourcing models that are “much more attractive as companies look to lower operating costs year on year,” say the report’s authors. “The percentage of reconciliation technology clients using hosted solutions increased from 4% in 2011 to 11% in 2013, and Aite Group expects it to reach 30% by the end of 2015.
“We expect that the reconciliation space will continue to evolve at a relatively rapid rate over the next few years,” Will Woodward, a research associate in institutional securities and investments at Aite, says in a statement. “Not all vendors are created equal, however. Some vendors do a terrific job at reconciling cash and holdings data, whereas others have great bells and whistles but lack work-flow support for certain types of reconciliation. So a careful assessment of requirements during any RFI [request for information] process is essential.”
Aite also finds that “financial institutions struggle to navigate the number and type of providers in the market … and could benefit from a better understanding of vendors’ varied strengths and weaknesses.” The research firm also calls on reconciliation IT vendors to be “more truthful about their differentiators such as experience dealing with particular types of data or a great track record dealing with a certain part of the financial markets community.”
SIFMA Wants Regulators to Step Up Usage of LEIs
SIFMA officials are advocating for the broader usage of the Legal Entity Identifier (LEI) standard by the US regulatory community via a letter submitted to Jacob Lew, U.S. Treasury secretary and chairperson of the Financial Stability Oversight Council (FSOC).
A uniform, global LEI system will help regulators and supervisors, researchers and firms to better measure and monitor systemic risk, as well as to more effectively measure and manage counterparty exposure and improve operational efficiencies, says SIFMA in its letter, signed by Kenneth E. Bentsen, Jr., president and CEO of the organization.
While SIFMA acknowledges that “significant progress” has been made in establishing the Global LEI System (GLEIS), “the time for further expanding the use of LEI through rulemaking is favorable,” according to the letter.
“We believe the FSOC and its members can and should play a key role in expanding the US adoption of the LEI and its related benefits by requiring LEIs to be used broadly in US regulatory reporting and other supervisory practices,” according to the letter. “We believe FSOC efforts in this regard will help further catalyze the development of the LEI as the unique global standard for identification of legal entities that transact in financial markets, and the foundational tool underpinning improved operational efficiencies, systemic risk management and financial stability.”
SIFMA also pledged to continue working with US and overseas regulators “to ensure adoption of this important risk management tool.”
Traders Allege CME Gave HFT Firms Market Data Advantage
Traders William Charles Braman, John Simms and Mark Mendelson are suing the CME Group, Inc. and the Chicago Board of Trade over allegations that the derivatives exchange company gave high frequency trading firms a market data advantage.
The legal action charges that the CME Group has been giving HFT firms this advantage over other investors since 2007.
“The suit is devoid of any facts supporting the allegations and, even worse, demonstrates a fundamental misunderstanding of how our markets operate,” says the CME Group in a statement.
“It is sad when plaintiffs’ lawyers bring a suit based on a desire for publicity, and in the rush to file a suit fail to undertake even the most basic effort to determine if there is any basis for their allegations,” the CME Group says. “The case is without merit, and we intend to defend ourselves vigorously.”
The legal battle will play out in the U.S. District Court in Chicago.
Etrali Launches Check Suite for Compliance
Etrali Trading Solutions, a telecom systems and recording services provider for trading firms, has launched its Etrali Check Suite compliance service.
Citing financial institutions’ increasing regulatory burdens and the significant challenges facing compliance officers, Etrali says its Check Suite monitors critical components of the compliance lifecycle, including the recording of traders’ calls. The new system will allow compliance officers to stay on top of infrastructure issues and potential risks, officials say.
Check Suite also targets suspended trading due to “failures to record traders’ calls” and other “potential losses of trading revenues,” the company says. In addition, Check Suite will offer reports and analytics for governance, control and “auditability of their recording infrastructure.”
“We make critical information more readily accessible to the compliance team, so that information can be easily accessed and acted upon,” says Robert Powell, Etrali’s global head of compliance and product management in a statement. “Firms will be able to monitor the solution themselves, allowing the compliance officer to be more proactive.”
Etrali Trading Solutions was founded in 1965 and acquired in 2013 by the private equity Gores Group.
Non-Cleared, OTC Collateral Drops by 14%: ISDA Survey
The 2014 Margin Survey, conducted by the International Swaps and Derivatives Association (ISDA), shows that the estimated amount of collateral in circulation in the non-cleared, over-the-counter (OTC) derivatives market decreased 14 percent, from $3.7 trillion at the end of 2012, to approximately $3.17 trillion at the end of 2013.
Much of this decrease can be attributed to the rise of mandatory central clearing, according to the ISDA.
There were 133,155 active collateral agreements (those with exposure and/or collateral balances) supporting non-cleared OTC derivatives transactions at the end of 2013, the ISDA finds. Eighty-seven percent of these are ISDA agreements.
Responding firms indicated that 90 percent of non-cleared OTC derivatives trades were subject to collateral agreements at the end of 2013.
The use of cash and government securities continues to account for roughly 90 percent of non-cleared OTC derivatives collateral, according to the ISDA.
As in the past, survey participants indicated the majority of portfolios they transact consist of fewer than 100 trades, say ISDA officials. Eighty-seven percent of non-cleared OTC derivatives collateral agreements relate to such portfolios. Only 0.3 percent involves portfolios of more than 5,000 trades as of December 31, 2013.
The 2014 survey also demonstrates that portfolio reconciliation is widely used and considered a best market practice, the ISDA notes.
Larger-sized portfolios (100 to 499 trades) show a five percent increase in daily reconciliation at the end of 2013, compared to 2012. Dodd-Frank and the European Market Infrastructure Regulation (EMIR) regulations involving more rigorous and frequent portfolio reconciliation are expected to continue driving this trend, according to the ISDA. Eighty-four percent of large firms surveyed indicate they reconcile their portfolio mix on a daily basis.
“Collateralization has a fundamentally important role to play in risk mitigation,” Robert Pickel, ISDA CEO, says in a statement. “Over the past 14 years, ISDA’s Margin Survey has provided a consistent set of benchmarks for collateral use and is part of a broader set of the association’s initiatives in the area of collateral, including documentation, best practices and practitioner guidelines.”
Of the 61 firms that responded to the 2014 survey, 87 percent were banks and broker dealers. The rest were either asset managers, hedge funds, insurance companies or others (sovereigns, government-sponsored entities, master trust banks and buy-side institutions). Participants were based in 20 different countries across three regions: Europe/Middle East/Africa (52 percent), the Americas (33 percent) and Asia (15 percent).
Fiserv Launches Financial Crime Monitoring Features
Fiserv, Inc., a provider of financial services technology solutions, is offering new real-time electronic payments monitoring capabilities that include protection from wire fraud.
The new capabilities complement the enhanced SWIFT sanctions-screening capabilities now available on Fiserv’s financial crime risk management platform, the company says.
Fiserv’s wire fraud prevention employs real-time detection scenarios to evaluate wire transfers and interdict suspected fraud, looking for anomalies and other characteristics that indicate fraud risk, the company says, adding that the system continuously updates normal behavior profiles for each customer, account and other entities relevant to the wire such as the user, originator, account, device, intermediary or beneficiary.
SWIFT sanctions screening also has been enhanced, the company says, to support all message-type formats including unstructured text screening and guided match review for 700-and 900-series messages, as well as targeted screening for specific entity types (such as vessels) to further reduce false positives.
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