Celent Report Finds CBR Project Costs Rising
Isabella Fonseca, research director, Celent
Firms have found that over the past three years cost basis reporting projects have had bigger price tags because of data quality issues, systems integration challenges and unavoidable manual processes, according to study by market research firm Celent, a division of Oliver Wyman, Inc. The report was funded by brokerage, tax and portfolio reporting vendor Scivantage.
These findings and others are from the Celent report, “Cost Basis Reporting: Reducing Total Cost of Ownership,” based upon the feedback from broker-dealers, mutual funds, transfer agents, custodians, prime brokers, and technology providers. Celent is
The marketplace is evolving from early 2010 when firms initially picked their CBR providers to 2011 when firms did a reality check and found that the scale and scope of their CBR projects were much larger than they initially expected, says Isabella Fonseca, research director at Celent, who co-authored the report with Alex Camargo, also a Celent analyst. In 2012 and last year, firms were reassessing their vendor relationships with the acknowledgment that cost was not just the price of technology, Fonseca says.
“This will definitely be the year that firms will need to explore new ways to constrain costs,” Fonseca says. Firms say they will consider consolidating systems and will be reviewing third-party systems, business process outsourcing (BPO) providers and data management tools.
The components to the cost of a CBR project in addition to the implementation and maintenance fees consist of the sometimes hidden impacts upon operational processes and staff organization, the necessary increases in client service front line staff, and the printing of the 1099-B forms, Fonseca says.
“These costs have to be included in their budgets. One of the biggest concerns and one of the largest of the hidden costs is the data quality from the source systems. Poor data quality is typically the result of poor integration,” Fonseca says. Firms have to optimize and scrub the data, which adds to the cost of CBR.
The situation is slated to worsen as firms embrace CBR for fixed income assets, says Job Dennison, vice president, product
Job Dennison, vice president, product management, Scivantage
management, Scivantage. CBR requirements for fixed income instruments consist of a two-part process, with the easier reporting starting on January 1, 2014. The more complex reporting will kick in on January 1, 2016. The calculations and data-gathering is likely to prove difficult for firms and finding “good quality information” for the fixed income CBR will be the lingering challenge, Dennison says.
Overall, the impact of CBR on operations has caused firms to focus on maintaining sufficient human and IT resources to manage the cost-basis effort. Yet there are quirks with back offices that might yield data quality problems. “You’ve still got a manual component that comes into play,” Dennison says.
“There are definitely labor and operational processes that need to be addressed,” Fonseca adds. “You need to maintain a cost basis operations staff and you have to reprioritize the staff as needed. An area that is getting more attention is the reconciliation of data quality to make sure it is in line with requirements.”
Along those lines, firms are grappling with what Dennison says are intractable manual processing issues such as open text field within a database, called data trailers, that are populated with messages that represent important aspects about a transaction. These data trailers often have incorrect information caused by human error, which can create massive complications downstream for many firms. “The question is whether the pain becomes sufficient to cause firms to do something about it,” he says. “You might have a system that has 500 to 600 trailers.”
Another major pain point is the consolidation and integration of reporting systems in order to get an enterprise-wide view for CBR, says Fonseca. “There are actually firms that are going through the pain points of consolidating systems,” she says.
Despite the bigger price tag for CBR, a majority of firms have no plans to pull back on spending, according to the report. The firms interviewed by Celent report that total spending on CBR has ranged from $2 million per year to greater than $15 million annually, totals that include software costs, maintenance, staffing, and operations.
“We definitely saw firms continuing the spending and, of the firms interviewed, an interesting finding was that 57% of them said that they will increase spending while 14% said they will decrease it and 29% said it would remain static,” Fonseca says. Firms have to be aware that there are likely to be increased costs for fixed income and later options implementations for CBR, Dennison says.
A potential silver lining is that the date collected for CBR can be applied to other know-your-customer-centric activities.
“This collection of data is actually going to enable wealth managers to have real-time information,” Fonseca says. “It will also enable tax-assisted trading. It can definitely lead to aggregation of performance reporting to enhance performance analytics, and more interaction for rebalancing. It can definitely be an enhanced service to customers.”
Markit Buys OMS Vendor thinkFolio
Markit has acquired thinkFolio, a London-based maker of portfolio management software in order to expand its enterprise software offers by being able to offer front office solutions, say Markit officials.
The thinkFolio order management system, portfolio modelling, compliance and cash management capabilities targets the cash and derivative markets across multiple asset classes such as bonds, commodities, equities and foreign exchange, according to Markit. Approximately 3,000 traders and portfolio managers at buy-side firms use thinkFolio’s offerings. The thinkFolio products have already been integrated with Markit’s enterprise data management solution and some data services from Markit, such as Transaction Cost Analysis and iBoxx fixed income indices.
thinkFolio will operate as a business unit within Markit and Andrew Walsh, CEO and founder of thinkFolio will join the enterprise software management team at Markit, say Markit officials.
Trefis Technology to Be Applied to S&P Capital IQ Models
S&P Capital IQ Equity Research, and Trefis, a vendor that transforms complex financial models into interactive visuals, have launched a joint agreement to make the models of S&P Capital IQ’s equity research team available to users of Trefis’ offerings.
The Trefis graphics display features are available for approximately 600 companies covered by S&P Capital IQ Equity Research, including most companies within the S&P 500 index, officials say.
In addition, Trefis also announced Trefis for iPhone, which can also be used to access the S&P Capital IQ interactive research. The new iPhone app is expected to be available from the iTunes store during the first quarter of this year, officials say.
European Energy Exchange Takes Majority Stake in Cleartrade
The European Energy Exchange (EEX) and Cleartrade Exchange (CLTX), a Singaporean futures exchange founded in 2010, have recently concluded an investment deal giving EEX a 52% holding in CLTX, say officials from both trading venues.
The transaction has been financed from EEX book cash and the acquisition was agreed upon during the fourth quarter of 2013 with all regulatory approval completed in December, officials say.
SWIFT to Use SmartStream’s Global Holiday Calendar
Financial messaging and services cooperative SWIFT will use the Global Holiday Calendar from SmartStream Technologies for its reference data management business to manage global events data in real-time, say SWIFT and SmartStream officials.
The Global Holiday Calendar covers trading sessions, exchange holidays, bank holidays, stock exchange settlement holidays, and derivatives exchange holidays, according to SmartStream. Holidays and sessions are monitored and changes are delivered to users in real-time.
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