IBOR with SimCorp | The Investment Book of Record
SOLUTION PAPER
GAIN COMPETITIVE
ADVANTAGE WITH
SIMCORP’S IBOR
Learn how an investment book of record (IBOR) helps
you take advantage of growth opportunities, future
proofs operations for years to come, and remedies any
weaknesses in your current operating model.
1
IBOR with SimCorp | The Investment Book of Record
2
TAKE THE OPEN
HIGHWAY TO
COMPETITIVE ADVANTAGE
An IBOR helps safeguard investment managers against the deficiencies
of their current operating models. SimCorp Dimension® is uniquely
positioned in the market today to fulfill all 10 requirements of an
advanced IBOR solution.
INTRODUCTION
Unprecedented changes in investor preferences have
swept the investment management industry in recent
years. Many of these trends will continue for some time
to come. Asset inflows and cross-flows are moving
away from traditional fixed-income and equity-based
products to alternative asset classes; they are also
shifting from traditional marketplaces towards emerging markets, such as Asia and Latin America. From
an investment strategy perspective, we are seeing a
distinct change in preference from actively managed
to passive products, including exchange-traded funds
(ETFs).
As investment management organizations evolve
their strategies to capture a share of these and other
growth opportunities, they look to their front office
teams for innovative offerings to help retain existing
clients and attract new ones. The firm’s front office
capabilities are paramount here, both in terms of the
ability to generate alpha and to ensure compliance
with the waves of new regulation sweeping the industry globally.
Investment managers are reacting by re-evaluating
their operating models. As they do so, they are
unearthing some hidden truths. Many years of underinvestment across much of the underlying systems
infrastructure, or previous decisions to outsource
some parts of their operations, are hindering their
powers. These include the ability to innovate, to make
sound investment decisions, and to comply with regulation. They find themselves struggling to establish
the necessary data foundation to run their businesses
effectively in this new environment.
DATA AND INVESTMENT DECISIONS
To keep ahead in a ferociously competitive market,
portfolio managers and traders need high quality,
up-to-date position and cash information. Such
information enables them to make the best informed
investment decisions and to comply with regulatory
requirements.
But the quality and timeliness of such data are of
increasing concern. This especially applies to asset
managers, who are sourcing start-of-day (SOD)
positions for front office use from internal accounting
systems, or external outsourced service providers.
Where different front office and/or operations teams
work in silos, by asset class, or investment strategy,
the problem is even greater. Asset managers in such
a situation typically:
•
•
•
•
•
Spend
a lot of front office time every morning
ensuring they understand their data
Have
to make investment decisions during the day
on incomplete, inaccurate data, including
inaccurate cash positions
Base
risk calculations on potentially inaccurate data
no ‘single source of truth’ in respect of investHave
ment positions, including cash
Expend
significant time and effort in aggregating
data for reporting purposes.
IBOR with SimCorp | The Investment Book of Record
This all results in headaches for the:
•
Chief Investment Officer: Wasted time, including
the time of front office professionals who make
the firm’s money.
•
Chief Investment Officer and Head of Trading:
Obstructions to making optimal investment and
trading decisions.
•
Chief Executive, Chief Risk Officer, and Chief
Investment Officer: Inability to readily understand
firm-wide risk and counterparty exposures.
•
Entire management: Difficulty in meeting reporting deadlines, whether management,
regulatory, operational, or stakeholder reporting.
•
Chief Financial Officer and Chief Operating Officer:
High cost of operations.
KEY FRONT OFFICE CHALLENGES
Time wasting
Front office personnel are spending a significant amount
of their time resolving errors. In many instances, many
are using at least an hour out of their day to unravel
errors caused by bad data – errors that should never
have occurred in the first place.
TIME SPENT BY FRONT OFFICE STAFF ON
ERROR RESOLUTION
30%
25%
20%
15%
10%
5%
0%
< 30 mins
30 mins
to 1 hr
1 to 2 hrs
> 2 hours
Source: TABB Group
1TABB Group (2016), Breaking Down Buy-Side Barriers: Achieving Alpha Through Agility
2Ibid.
3
Compliance checks
A majority of buy side firms have issues executing
pre-trade compliance checks using their current technology, mainly because the process is inefficient and
slow. The causes of these challenges includes bogus
errors, time consuming, trade logic/integration, data
complexity, volume and velocity, and lack of technology.
Asset allocation strategies
With asset allocation being one of the most significant
decisions around portfolio construction, it is a concern that so many firms continue to endure errors
when executing asset allocation programs because of
technology architecture. Such an outcome has grave
implications for firms and their investors.
Inaccurate position or cash projections
The largest barrier to an error-free trading environment, as well as trading agility, is the reflection of
incorrect share positions and cash balances in front
office systems. Many firms continue to experience
trade errors due to inaccurate data, ranging in frequency from occasionally to always. TABB Group
found that two-thirds of firms attributed these data
inaccuracies and resulting errors to poor reconciliation
between systems. More than 50% of buy-side firms
experience trade errors, mainly caused by incorrect
position or cash data across separate front, middle
and back office systems.1
FINDING THE RIGHT OPERATING MODEL
As outlined in a TABB Group report, Breaking Down
Buy Side Barriers, there are five possible operating
models, including; best of breed, single vendor/multiplatform, legacy remediation, least expensive and no
consistent IT architecture strategy.2 The report finds
that each IT strategy approach has its pros and cons
(with the exception of having no strategy), but one
thing is clear — investment management firms of all
sizes and types need immediate access to accurate
gold copied positions and cash balances across all of
their systems — trading, performance, risk, accounting,
portfolio management and compliance. An integrated
architecture built around a single repository for storing transactional, client, and reference data provides
the cleanest option, and reduces the need to reconcile
systems and to troubleshoot the errors that arise.
IBOR with SimCorp | The Investment Book of Record
TABB Group’s senior analyst Dayle Scher, who authored
the report, found that the role of technology and
operations plays an important role in supporting
alpha generation: “In order to grow and scale, it is
imperative that firms’ front office applications such as
trading and risk platforms are able to speak to each
other in the same language, as well as to any other
supporting system such as performance measurement and accounting. More importantly, these front
office applications need to contain a golden copy of
every piece of information that passes through the
back, middle and front office without lengthy system
reconciliations that can delay the investment process.
Inconsistencies and discrepancies that arise in an
order management system or risk analytics package
can have multiple – all negative – consequences. The
decisions and strategy that investment management
firms make today about their underlying technology
applications will contribute to their future success or
failure.” 3
HOW THE PROBLEM ARISES
External service providers, or in-house accounting
systems, maintain end-of-day (EOD) records. Such
records are often referred to as the accounting book
of record (ABOR). Overnight, complex SOD processes take the EOD data and enrich it to create SOD
positions (see Figure 1). SOD positions should include
known events of the day, such as corporate actions
and interest payments.
Front office
TBOR
SOD positions
SOD cash
Trades
Accounting
ABOR
EOD positions
EOD cash
Start-of-day
(SOD)
processes
Figure 1: Illustration of a typical trading infrastructure and data flows.
4
But in many cases, the SOD positions are merely
approximations, due to missing or inaccurate information, or to inadequate tools and processes. These
SOD positions are the basis for front office systems
that reflect the impact of trading activities intraday.
This view is often called the trading book of record
(TBOR). Usually intraday or backdated ABOR changes
are not reflected in the TBOR before the next day.
DEFINITIONS OF KEY BOOKS OF RECORDS
Accounting book of record (ABOR): EOD
records of settled investment positions. These
are typically updated overnight to incorporate
certain non-trading activities, such as corporate
actions, to create a SOD TBOR for portfolio
managers and traders.
Trading book of record (TBOR): SOD set of
records that is adjusted as trading activities
ensue during the course of the day. This typically lacks data about non-trading activities that
occur during the day, such as collateral movements, corporate actions, and resets.
If the front office is not provided with accurate position
views, it will seek to create them on its own. Hence,
each front office system – or even user – often establishes a ‘shadow’ position record, adjusting it manually
for errors or missing investment data, such as corporate actions. However, the TBOR holds no position
history. Perhaps more importantly, it does not capture
all intraday events that have not originated in the front
office, such as collateral movements.
Making such problems worse, many firms operate
with multiple TBORs, with each dependent on the
quality of the SOD positions and timeliness of updates
from the ABOR for its own asset class. In other situations, multiple ABORs prevail, with each lacking the
essential information on simulated trades or pending
orders, and not updated with intraday transactions.
It is impossible to ignore the fact that this model
prevents firms from establishing a correct, up-to-theminute, intraday consolidated overview of investment
positions and exposures. It prevents either the TBOR
or the ABOR from holding the entire truth.
3Press Release (March 14, 2016), SimCorp Survey Reveals Significant Struggles with Risk and Performance Analytics in the Front Office >
IBOR with SimCorp | The Investment Book of Record
DEEPENING CONCERNS
There was a time when this situation was less problematic. Portfolio managers and traders could work
adequately with a TBOR that was created overnight.
Although important position drivers, such as cash
in- and outflows, or corporate actions, were often
missing, the TBOR was seen as providing an acceptable approximation of positions on which to base
investment decisions.
However, the world has moved on:
•
•
•
•
•
The industry’s unrelenting globalization has introduced operational dependencies that challenge
the very concept of an ‘overnight’ position.
The timeliness of all investment information is
increasingly crucial and no longer optional.
An ever-broadening range of investable securities
and strategies has made the understanding of crossasset views essential, including counterparty risk.
Regulation has made collateral management a
required element in investment decision-making.
The need to have a holistic view of risks associated
with any action, or inaction, is essential. To have
this complete picture, as well as execute trades
and corporate actions, the portfolio manager
needs to factor in resets, simulations, open trades,
benchmarks, collateral needs, and cash movements.
5
TBORs today – especially if they are asset-class specific – are simply considered inadequate. The consequences of their operational shortcomings cannot be
overstated: Many traders as well as portfolio and risk
managers are basing their investment decisions and
risk assessments on delayed, incomplete, and inaccurate position as well as investable cash information.
They simply have nowhere to go for a truly firm-wide
overview of exposures across portfolios, asset classes,
sectors, geographies, currencies, and counterparties.
Leading investment management firms have understood the importance of their data as a source of
competitive advantage. There are many alternatives
to improve a firm’s underlying data foundation for
investment decision-making, risk management, and
compliance. However, there is growing interest around
a developing concept in the institutional investment
community that may help firms accelerate their ambitions in this area – the investment book of record
(IBOR).
WHITE PAPER
CAN YOU COMPETE
WITHOUT ONE?
Learn how an investment book of record (IBOR)
helps you on a daily basis to improve focus on
your core business and provide the foundation
for innovation and the ability to tap into new
growth opportunities.
LEARN MORE
IBOR with SimCorp | The Investment Book of Record
6
INVESTMENT BOOK
OF RECORD (IBOR)
An IBOR equips investment management firms with the ability to innovate
and scale, thereby differentiating their product and service offerings for
maximum competitive advantage by providing a comprehensive, real-time,
and accurate data foundation across the enterprise for decision-making,
risk assessment, compliance, and client servicing purposes.
DEFINITION OF AN IBOR
An investment book of record (IBOR) delivers
control over investment-critical information
to asset managers by centralizing intraday positions across all asset classes into a ‘golden copy’.
It provides up-to-date information in real time
about current as well as projected and historical
positions and cash for all events driving the position lifecycle. This enables portfolio managers
and traders to make better investment decisions,
providing risk managers with accurate views
on exposures and the back office with precise
views on current, as well as future cash, liquidity, and collateral positions.
The IBOR is the point of consolidation. To ensure this,
it must be part of the asset manager’s system infrastructure.
FIVE OPTIONS TO IMPROVE INFORMATION
Asset managers with a system infrastructure based on
TBOR(s) in the front office and ABOR(s) to support
operations departments have five options to improve
the information on which the front office relies:
•
•
•
•
In practical terms, the IBOR’s purpose is to establish a
consolidated, enterprise-wide, multi-asset class data
foundation. For front office users, the IBOR provides
a complete and up-to-date front office based view
on current positions and investable cash. Ideally, the
IBOR combines all the components of the TBOR and
ABOR in capturing all events intraday no matter their
origin.
The IBOR is the independent point of reference for
asset managers that:
•
•
•
Utilize one or more service providers for accounting or investment processing
Have more than one order management system
(OMS) in their front office
Have more than one accounting system
•
Introduce
an IBOR into the infrastructure as a
stand-alone component
Extend
the accounting or operations infrastructure
to include an IBOR
Extend
the front office infrastructure to include
an IBOR
Outsource
IBOR requirements to a third party
provider
Merge
the front office and operations infrastructures into one integrated front-to-back office
system with an IBOR
When choosing which strategy to pursue, the asset
manager should consider current and future business
needs, for example, meeting regulatory requirements
or supporting growth strategies. But he should also
take into account specific pain points and current
vendors’/systems’ IBOR capabilities.
IBOR with SimCorp | The Investment Book of Record
7
At a high level, the IBOR must capture, calculate, and
disseminate as follows:
•
•
•
and cash, reflecting not only trading metrics but also
non-trading activity such as corporate actions and
collateral movements.
C
apture position-driving events from a range of
operational source systems
Calculate positions based on events, forecasts, etc.
D
isseminate the information to end-users and
consuming systems
By delivering up-to-date information in real-time
about current, projected and historical positions and
cash for all events driving the position lifecycle for
all asset classes, the IBOR increases the front office’s
agility to react to market situations. By moving data
management out of the front office, it stops expensive
alpha generating portfolio managers spending lots of
time reconciling and creating their own SOD positions
every morning.
These concepts are summarize here in Figure 2. A
number of source systems feed the IBOR every time a
new event occurs. This enables the IBOR to keep track
of the entire lifecycle of the positions. This is fundamental to the IBOR’s ability to serve as a solution for
the problems described above.
If integrating all accounting platforms and order
management systems the IBOR enables investment
management process automation, which again allows
the organization to scale their business without major
investments – allowing for faster onboarding of new
geographies, trading markets and new mandates.
Based on the positions and event schedules, the IBOR
calculates current and projected security and cash
positions. The event schedules include, for example,
coupons or redemptions, maturity of a swap contract,
dividends on both ex and payment date, and expected restitutions.
A true IBOR must handle all the instruments the asset
manager trades – equities, fixed income, cash, foreign
exchange, money market, derivatives, structured
products, alternative investments, commodities, etc.
That will enable faster time-to-market for trading of
new instruments in the front office and firm-wide view
of consolidated exposure across all assets.
KEY BENEFITS OF AN IBOR
Portfolio managers and traders rely on correct and
timely position data in order to make the right investment decisions, and they insist on access to the most
complete, accurate and up-to-date view of positions
and investable cash. An IBOR feeds the organization
with a ‘single source of truth’ of investment positions
Reporting
Other systems
Custodian
Reconciliation
Current, historical, projected positions
INVESTMENT BOOK OF RECORD
Front
office/OMS
Transaction lifecycle
Simulated
Accounting
Settlement
Collateral
Ordered
Allocated
Confirmed
Booked
Settled
Security, contract, and cash positions
Events
Trades
Historical
records
Current
and
projected
security
and cash
Event schedule
...
Valuation and key ratios
Figure 2: Illustration of an IBOR’s elements and interaction with operational systems.
IBOR with SimCorp | The Investment Book of Record
8
THE IBOR AS CENTER OF
THE INVESTMENT UNIVERSE
The IBOR positions are the foundation for all the systems that receive
data from it, some of which are also source systems. Additionally, it is
the basis for reconciliation with custodians, external service providers,
or other systems. Further, the IBOR provides valuation services, accruals,
and analytics, ensuring consistency across all of the receiving systems.
TOP 10 REQUIREMENTS
SimCorp has defined the 10 key requirements that an
IBOR must fulfill in order to provide a complete and
up-to-date, front office-based view on current positions and investable cash, as well as the data foundation for enterprise-wide risk assessment, compliance,
and client servicing.
TOP 10 KEY IBOR REQUIREMENTS
1 Full instrument coverage
2 Position management
3 Event management and drill-down
4 Cash forecasting
5 Security forecasting
6 Reconciliation and exception management
7 Integration to source systems
8 Market valuation, accruals, and analytics
9 Distribution to receiving systems
10 Online view of IBOR information
These requirements go far beyond those that conventional data management systems or data warehouse
solutions typically satisfy.
SIMCORP’S IBOR SOLUTION
The remainder of this paper presents SimCorp
Dimension® as an IBOR solution in the context of
these 10 key requirements.
FULL INSTRUMENT COVERAGE
One of the IBOR’s main purposes is to provide a consolidated view of all the assets
within the firm as opposed to a silo based
view on individual asset classes.
1
PRODUCT
INVESTMENT BOOK OF
RECORD MANAGER
To improve your investment performance,
SimCorp Dimension®’s IBOR Manager gives
your portfolio managers access to the data
they need to support their investment decision
making.
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Without such a view, it is impossible to readily understand firm-wide risk and counterparty exposures.
Hence, the IBOR must handle all the instruments the
asset manager trades – equities, fixed income, cash,
foreign exchange, money market, exchange traded
derivatives (ETDs), over-the-counter (OTC) derivatives, structured products, alternative investments,
commodities, etc. Moreover, the IBOR must support
all of these instruments consistently, for example, with
respect to position and event management, forecasting, and valuation. This requires that the IBOR provides in-depth business functionality across all asset
classes.
IBOR with SimCorp | The Investment Book of Record
9
SimCorp Dimension®’s extensive instrument coverage
is amongst the most comprehensive in the industry,
including a vast array of standard instruments, as
well as tools for modeling additional derivatives
(see Figure 3).
events, such as closing down periods for reporting,
as well as backdates due to erroneous transactions.
SimCorp Dimension® handles multiple position levels,
typically split into four: 1) simulation or order;
2) executed but not confirmed; 3) confirmed and contractual; and finally 4) settled and physical delivery.
POSITION MANAGEMENT
SimCorp Dimension® provides position-keeping for all instruments and cash
accounts by managing the entire position
lifecycle. It delivers this as and when events ensue
that affect positions in real time.
It includes events that occur right across the business
– in the front office, middle office, or in investment
processing and accounting.
SimCorp Dimension® reflects the reality that ‘position’
means different things to different people. Hence, it
allows users to individually define how to view positions
by handling all permutations of the above. For example,
one user might need to view positions, including open
orders for one asset class, or portfolio. But for another
asset class, or portfolio, he only needs to see the
positions based on confirmed trades. Then again, a
second user might require completely different views
altogether.
2
This extends across simulation/what-if > order placement > order execution > trade confirmation > trade
settlement/physical delivery, and post-settlement
TYPE
SimCorp Dimension® allows the grouping of positions
according to users’ needs, for example, by portfolio,
SECURITIES
MONEY
MARKET
STANDARD
EXCHANGE
TRADED
DERIVATIVES
OTC DERIVATIVES
STRUCTURED
EXOTIC
DERIVATIVES
(EXAMPLES)
Fixed
Income
Bonds
Fixed/Floating/Structured
Schuldscheine
US MBS
Pools
TBA Trades
Asset Backed Securities
Pass-Through Certificates
Convertible Bonds
Bank Accounts
Loans, Commitments
and Facilities
Call Money
Deposits (fixed,
floating)
Bills
Commercial Paper
Certificate of Deposit
Bond Futures
Bond Options
Futures on Bond
Options
Bond Forwards
OTC Bond Options
Interest Rate Swaps
Cross Currency Swaps
Dual Currency Swaps
CMS/CMT Swaps
Swaptions
FRA/IRF
Cap/Floor/Collar
Securities lending
Repos
Sell/buy-backs
Complex structured
notes/products
Exotic derivatives
Examples:
Range accruals
TARNs
Snowballs
Equity/
Index
Equities
Rights
(Covered) Warrants
ADR/GDR
Index Certificates
Equity/Index Futures
Equity/Index Options
Futures on Equity/
Index Options
Equity/Index Forwards
OTC Equity/Index Options
Total Return Swaps
TRS on Dynamic Baskets
Contracts For Difference
Portfolio Swaps
Complex equity or hybrid
structures
Examples:
Equity/Index Linked Hybrids
Variance/Volatility Swaps
Exotic options
FX Futures
FX Forwards
FX Swaps
FX Options
Exotic FX Options
Examples:
Exotic options
Index CDS
Index Tranches
Single Name CDS
Bespoke Basket CDS
Synthetic CDOs
CDS Options
ASSET
CLASS
FX
FX Spot
Credit
ABS
Corporate bonds
Inflation
Index bonds
Examples:
Zero Coupon Inflation Swaps
YoY Inflation Swaps
Other
Commodities
Fund Certificates
Alternative Investments
Commodity Options
Examples:
Exotic Commodity Options
Weather Derivatives
Catastrophe Bonds
Figure 3: Illustration of SimCorp Dimension®’s extensive instrument coverage.
IBOR with SimCorp | The Investment Book of Record
strategy, custody account, clearing house, or counterparty. It also reflects whether the security position is
lent out, or pledged as collateral.
SimCorp Dimension® also supports amendments and
deletions that impact the positions, including backdated changes. Additionally, it provides look-through
and decomposition of instruments, such as index
futures or structured products, and keeps track of
position history with the ability to lock down periods
in order to re-create historical position views.
EVENT MANAGEMENT AND DRILL-DOWN
Most commonly, buying or selling securities drives changes in positions. However,
also driving changes are events, such as
corporate actions, redemptions, maturity of contracts,
close or partial close, roll-overs, exercise, resets, and
collateral movements. While in an IBOR context, all of
these events may originate in other systems, SimCorp
Dimension® contains business logic to calculate how
they impact positions across the entire position lifecycle, and includes over 500 different types of transactions (most of which affect positions).
Unlike in purely position-based IBOR systems, SimCorp
Dimension maintains a link between positions and events
to provide drill-down capabilities. This is absolutely
essential for efficient reconciliation between the IBOR
and source systems. SimCorp Dimension® makes it
possible to drill down from any position in any security
or cash, and whether simulated, executed, confirmed,
or settled, to the individual events that have affected
the position over time. It is even possible to overlay
an approval process, for example, utilizing automated
threshold tests and alerts to secure data accuracy.
3
CASH FORECASTING
The amount of investable cash available
is crucial information in investment decision-making. Without this information, it is
impossible for the Chief Investment Officer’s team to
perform optimally.
4
SimCorp Dimension® holds both current investable
cash and forecasts of future cash positions, including
all events that impact the cash accounts: Active investment decisions, such as buys and sells, close and
partial close, foreign exchange, and roll-overs. Critically though, it also incorporates other types of events
that do not originate in the front office, but which can
have a significant impact on cash. Hence, it covers
fees and other payments, interest payments, cash col-
10
lateral movements, corporate actions, cash injections,
fund issues and redemptions, and coupons.
Cash forecasting could reside in each of the receiving
systems where the information is primarily used, for
example, the order management systems (OMS).
However, most of these systems do not provide the
necessary business logic to handle complete and
accurate cash forecasting. SimCorp Dimension®
contains all the events impacting cash positions.
Also, the advantage of having the cash forecast in
SimCorp Dimension® is that many different users
across different business areas can utilize the cash
forecasts, ensuring a common and consistent view
across the firm.
Cash forecasting also requires knowledge of future
events. Unlike offerings that fail to include event
management functionality, SimCorp Dimension® can
capture all the information necessary for forecasting
upcoming corporate actions, fixed-income cash flows
and derivatives events, such as exercise or maturity.
Much of this information is typically stored in the
security master (i.e. cash flows), or derivatives contract definitions (contract events). Hence, it would be
only natural to see the security master as part of the
IBOR – and indeed SimCorp Dimension® is routinely
deployed in this way. It connects to data providers
and incorporates data cleansing functionality, including tests for reasonableness of data changes, ensuring
high quality and creating a reliable ‘golden copy’.
SECURITY FORECASTING
With increased volumes in collateral, repo,
and lending, the ability to forecast security
balances becomes equally as important as
forecasting cash positions. Without an event management capability, an IBOR could not provide security
forecasting to portfolio managers.
5
SimCorp Dimension® forecasts security balances
based on all types of future events: For example, buys
and sells, maturity, stock collateral, repo, lending, corporate actions, and redemptions.
As with cash forecasting, security forecasting could
in principle reside in each of the systems used by the
information consumers, such as the collateral desk,
or portfolio managers and traders. However, SimCorp
Dimension® can capture all of the relevant events, with
the advantage that it creates comprehensive, reliable,
and consistent forecast views that any relevant user
can utilize.
IBOR with SimCorp | The Investment Book of Record
RECONCILIATION AND EXCEPTION
MANAGEMENT
One of the IBOR’s fundamental aspects
is that it is a central place where data
from disparate sources is consolidated and checked
for quality. To ensure this, SimCorp Dimension® includes reconciliation and exception management tools.
Data values in SimCorp Dimension® are compared to
those of the source systems, reconciled by use of
parameters, such as absolute or relative tolerances.
6
What’s more, SimCorp Dimension® provides comprehensive alert management and drill-down capabilities
that allow users to overview exceptions and dig into
position discrepancies all the way down to the underlying events. These are essential tools in efficient
case management to provide overview, focus on
exceptions, and for quickly locating the source of any
discrepancies.
Portfolio managers and traders insist on access to
the most complete, accurate, and up-to-date view of
positions and investable cash. In that respect, the investment management firm must decide whether the
IBOR should just mirror the information f the source
systems, or whether it should have ‘its own view of
the truth’. The real value of SimCorp Dimension®,
when implemented as an IBOR, is maximized when
it is used as the ‘golden copy’, as this brings with it a
number of significant advantages.
For example, the IBOR must be able to include a
corporate action before the event takes place, as it is
essential information for the portfolio manager’s decision-making process. This information may not exist in
the accounting system, because from an accounting
perspective, there is no need to know until the event
has actually taken place. What’s more, if the source
systems suffer from data accuracy issues, the IBOR
will simply mirror the inaccuracies and errors, rendering the IBOR data perilously redundant.
SimCorp Dimension distinguishes between events
caused by active decisions, such as buying or selling
a security, and events that originate from outside of
the firm. Events from active decisions should be obtained directly from source systems, whereas ‘passive’
events, such as many corporate actions, rate-fixings,
resets, etc., are best managed in SimCorp Dimension®.
Letting SimCorp Dimension® handle these events
across instruments allows for reconciliation against the
source systems to significantly improve data quality.
®
11
INTEGRATION TO SOURCE SYSTEMS
SimCorp Dimension® effectively integrates
to other systems for capturing relevant
events. The interfacing tools utilized are
standard throughout the system – irrespective of the
type of data for import, the same tools are used. This
consistency greatly simplifies the development of
interfaces.
7
You can also use SimCorp Dimension® to import
data formats, such as XML, JSON, SWIFT, or FIX via
multiple transport mechanisms, such as web services,
FTP, IBM Websphere, or an Enterprise Service Bus.
SimCorp Dimension® also fully supports event-driven
interfacing, which is important to ensure the IBOR is
as real time as the source systems allow.
MARKET VALUATION, ACCRUALS,
AND ANALYTICS
Different users across front and middle office will have different needs when it comes
to valuation and analytics.
One portfolio manager may need real-time prices;
another may need only snapshot prices; while a risk
officer may need new prices and analytics only once a
day. Some portfolio managers only trade liquid stocks
where a quoted market price is readily available, while
others may trade OTC derivatives where valuation is
based on a theoretical price model.
8
Derivatives and collateral positions must be marked to
market according to frequency and valuation methodologies agreed with the counterparty, or as stated by
the clearing house. Front and middle office users also
need accrual information, such as accrued interest on
a bond, daily margins on bilateral derivatives contracts,
or accrued management or custody feeds. It is not
accurate enough to only register accruals when they
settle.
SimCorp Dimension® contains valuation, accruals, and
analytical models covering the entire instrument universe. This data can be either imported from data providers, or calculated based on an extensive library of
pricing functions. SimCorp Dimension® also includes
advanced fee capabilities (e.g. high water marks) that
can calculate accrued and expected fees, which are
subsequently reconciled against the actual payments.
Just as for cash and security forecasting, market valuation could reside in each of the consuming systems.
However, a significant advantage of including it in the
IBOR with SimCorp | The Investment Book of Record
IBOR is the resulting consistency in the utilization of
these figures and the related calculation models. The
fee calculation engine in SimCorp Dimension® allows
all consuming systems to share the same accruals.
Also, at specific times – for example, end of day, or at
the time of striking the official net asset value NAV)
of a fund – many users want to use the same exact
prices, market values, accruals, and analytics.
SimCorp Dimension has the additional advantage of
providing the ability to aggregate exposures, such as
counterparty and issuer exposures on firm level. This
goes beyond market valuation, and is only possible
because SimCorp Dimension® has complete position
and contract information. The aggregation is based
on full look-through into the underlying elements of
derivatives, collateral, and structured products. This
advantage translates into significant cost savings as
you can pull together all the required data in your
daily operations.
®
DISTRIBUTION TO RECEIVING SYSTEMS
All of your calculated information in terms
of positions, valuations, and analytics, as
well as cash and security forecasts, must go
out to a range of consuming systems.
9
SimCorp Dimension® offers an advanced data extract/
transform/load toolset. It can publish data in multiple
formats, such as XML, CSV, Swift, or FIX via a range
of transport mechanisms, such as web services, IBM
Websphere, messaging, or FTP. As for integration with
source systems, you can accomplish event-driven distribution to receiving systems immediately as events
occur in near real time.
To ensure timeliness and data quality, SimCorp
Dimension® also gives you data change capture and
alert functionality, as well as data quality checks.
ONLINE VIEW OF IBOR INFORMATION
Distributing data from SimCorp Dimension®
is one thing. However, the receiving systems
– especially legacy systems (see definition
in the box below), or those of narrow purpose – may
struggle to consume or integrate information effectively. An IBOR should provide the user with a direct
view to the information it holds. For example, many
OMSs cannot represent the IBOR position information
correctly. This applies to marking a security position
as lent out, or pledged as collateral, for instance.
10
12
SimCorp Dimension® provides front office users with
an accurate and comprehensive view of current positions and investable cash, market values, accruals,
and analytics, as well as cash and security forecasts.
You can configure the view seen entirely to your user
needs.
BENEFITS OF THE SIMCORP IBOR
SimCorp’s IBOR solution helps clients make the most
informed decisions with the highest degree of automation and accuracy so that users understand their
current positions and the impact of investment decisions.
SimCorp’s IBOR solution fulfills all 10 requirements
of an advanced IBOR solution, delivering tangible
value to the business user. Its full instrument coverage ensures faster time-to-market for trading of new
instruments, especially complex products like alternatives or OTC derivatives. Comprehensive and flexible
integration to source and receiving systems captures
data from and to all third party systems (including
legacy systems), allowing for low integration risk and
minimum disruption of existing workflows.
Access to real-time position management increases
agility in the front office functions, allowing them to
react faster to market movement. Centralized event
management and drill-down removes the need for
costly data management in the front office and
improving communication between front office and
back office functions. At the same time integrated
reconciliation functionality reduces time and cost
spent on reconciliation breaks. Integrated cash and
security forecasting leads to increased investment
performance through reduced liquidity cash buffers.
Providing tools for market valuation and an online
view of IBOR information allows stakeholders to get a
full view of the risk exposure across asset classes and
better enforce SLAs with custodians or TPAs.
In summary, functionality of SimCorp Dimension®’s
IBOR enables clients to speed up onboarding of new
mandates and improve client service and reporting. It
supports follow-the-sun operating models and helps
organizations to efficiently scale their business globally. Because investment information is available in the
right format for the right function it enables everyone
to perform the task their title demands and not be
distracted by unnecessary data management.
IBOR with SimCorp | The Investment Book of Record
13
IMPLEMENTATION
OF THE IBOR
Figure 4 illustrates a logical system infrastructure and its main data
flows. The IBOR calculates positions and cash – along with cash and
securities forecasts – to provide the foundation for your Front and
middle office analysis and decision-making.
SimCorp Dimension® captures all of the events that
impact security and cash positions originating from
front office or investment processing, or – in the case
of backdates – from the accounting system. To ensure
data quality, SimCorp Dimension® reconciles with
accounting systems and external parties, such as custodians and clearing houses.
accounting system that restricts growth into new asset
classes or geographies. Another could be a system
infrastructure that has many systems and integration
points.
These make it very costly to operate on a daily basis
or to periodically upgrade systems within it. Since
you can largely implement an IBOR without impacting the existing operational systems, infrastructures,
and flows, doing so is a natural first step. Once you
have installed the IBOR, your asset manager can then
address other pain points.
Additionally, SimCorp Dimension® provides a foundation for Front and middle office analysis and decisionmaking. But often there are additional pain points
in the broader infrastructure. One could be a legacy
Middle office
Portfolio
management
and trading
Investment
procession
Accounting
Risk
Equities
Confirmation, settlement
NAV
Performance
Fixed income
Corporate actions
Valuation, accruals
Attribution
Derivatives
Collateral
amortization
General ledger
Compliance
FX/MM
Lending, FX, MM
Alternatives...
Fees...
SimCorp Dimension® as IBOR
Reconcile
Figure 4: Illustration of a logical system infrastructure and its main data flows.
IBOR with SimCorp | The Investment Book of Record
14
FIVE OPTIONS WITH ONE SOLUTION
Earlier in this paper, we listed the five major IBOR implementation options. Here we describe how SimCorp
provides an IBOR solution for each of the options as
follows:
Introduce an IBOR into the infrastructure
as a stand-alone component.
This is the situation as described above.
You implement SimCorp Dimension® alongside the existing infrastructure as a new component.
1
Extend the accounting or operations
infrastructure to include an IBOR
Unlike most accounting-only systems,
SimCorp Dimension® can operate as both
an IBOR and an ABOR in the same system. This means
that if required SimCorp Dimension® can serve as your
accounting system based on the ABOR. At the same
time, it can act as the IBOR that captures all intraday
events as described above. In this set-up, SimCorp
Dimension® automatically handles the reconciliation
between the IBOR and ABOR with the fundamental
system architecture ensuring that the IBOR and ABOR
are always aligned and consistent.
2
Extend the front office infrastructure
to include an IBOR
Unlike most front office-only OMSs,
SimCorp Dimension®’s Front Office suite
includes an integrated IBOR. Hence, it handles the
TBOR and IBOR in the same system. In this configuration, your front office runs truly independent of all accounting systems or service providers since it directly
captures all events across all asset classes.
3
Outsource your IBOR requirements to
the third party provider
In this scenario, you choose to outsource
the IBOR to a third-party provider. For
organizations that are outsourcing middle-to-back
office processes to custodians or other service providers it can prove challenging to obtain an IBOR. Most
firms that outsource operations are not able to independently verify valuations, calculate fees and ensure
that client data is accurate. This poses an operational
risk, because firms who outsource still have fiduciary
responsibilities to clients and are accountable to regulators regarding operational integrity.
4
Merge the front office and operations
infrastructures into one integrated frontto-back office system with an IBOR
Here you use SimCorp Dimension® to
handle all asset management functions front-to-back
across all office operations, as well as accounting.
There is just one common ‘book of records’. While
used across the entire organization, each and every
user can define their own views of the data they need
for daily work. For example, front office users can
have their IBOR views, while operations users have
their ABOR views. The data in all views remains entirely consistent all of the time. In this case, SimCorp
Dimension® serves as the TBOR, ABOR, and IBOR
simultaneously.
5
SimCorp Dimension®’s configurable design supports
any of these options. It also offers the choice to expand functional coverage over time to achieve a more
effective, efficient, and simplified systems infrastructure.
Benefints of a fully integrated trading architecture
Accurate trading positions & exposures
Accurate trading cash
Consistent data across multiple system
(oms. accounting, ect. )
Timely and accurate access to accounting data
Accurate and timely pretrade compliance checks
Accurate and timely pretrade compliance checks
Less important
Source: TABB Group
More important
IBOR with SimCorp | The Investment Book of Record
SUMMARY
Many asset managers have complex IT infrastructures
with many systems and integration points. Often such
architectures are based on a separation between the
TBOR and the ABOR. This leads to investment decisions based on an incomplete, out of sync, and hence
incorrect view of positions and investable cash.
The IBOR solves these problems by capturing all events
across all asset classes and systems to maintain a
position record that is always up-to-date and correct.
This position – along with investable cash – is available
to front office users is a far better foundation for investment decisions and risk assessments.
An alternative is to obtain an IBOR from an outsourcing
provider like a custodian or other service provider. This
can prove challenging in situations when for instance,
the middle and back office is outsourced and front
office users want to utilize analytics like performance
and attribution data or perform comprehensive risk
analysis.
15
IBOR with SimCorp | The Investment Book of Record
16
CONCLUSION
SimCorp Dimension® fulfills all the 10 key requirements of an advanced
IBOR solution. These requirements cover the capture of data from all source
systems in all formats utilizing different communication technologies. The
IBOR’s central function is to use events to calculate positions across the full
lifecycle of all asset classes. SimCorp Dimension® also provides you with a
range of additional functions, such as position history, lock-down periods,
handling updates, cancellations, and decomposition of structured products.
In addition, SimCorp Dimension® forecasts cash and
security balances and contains market valuation and
key ratios functionality. All of this requires the advanced
business logic that SimCorp Dimension® has. Finally,
SimCorp Dimension® disseminates the information to
other systems and offers the end user his or her own
view of the information it holds.
SimCorp Dimension® is modular in architecture. Hence,
it is flexible enough to be implemented in many different operational environments: As a standalone IBOR;
as a front office system with an integrated IBOR; as
an operations/accounting system with an integrated
IBOR; or as a front-to-back system with one common
book of records.
With SimCorp Dimension® at the core of your operations, you have the breadth and quality of data
you need for accurate investment decision-making,
enterprise-wide risk management, and regulatory
compliance.
Leveraging SimCorp Dimension® as an IBOR can have
a significant and positive impact on your business,
freeing up key resources to focus on the core business,
providing the foundation for innovation, and improving
your ability to tap into new growth opportunities.
CLIENT STORY
EDMOND DE ROTHSCHILD
Leading the charge with an
IBOR-based front office.
ABOUT SIMCORP
SimCorp provides integrated, best-in-class investment management solutions
to the world’s leading asset managers, fund managers, asset servicers, pension and
insurance funds, wealth managers and sovereign wealth funds. Whether deployed
on premise or as an ASP solution, its core system, SimCorp Dimension®, supports
the entire investment value chain and range of instruments, all based on a marketleading IBOR. SimCorp invests more than 20% of its annual revenue in R&D, helping
clients develop their business and stay ahead of ever-changing industry demands.
Listed on NASDAQ Copenhagen, SimCorp is a global company, regionally covering
all of Europe, North America, and Asia Pacific.
For more information, please visit www.simcorp.com.
ONE SYSTEM FOR A COMPLEX WORLD
LEGAL NOTICE
The contents of this publication are for general
information and illustrative purposes only and are
used at the reader’s own risk. SimCorp uses all
reasonable endeavors to ensure the accuracy of the
information. However, SimCorp does not guarantee
or warrant the accuracy, completeness, factual
correctness, or reliability of any information in this
publication and does not accept liability for errors,
omissions, inaccuracies, or typographical errors.
The views and opinions expressed in this publication
are not necessarily those of SimCorp. © 2014
SimCorp A/S. All rights reserved. Without limiting
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Refer to www.simcorp. com/trademarks for a full
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