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INSIDE THIS ISSUE
Creating processing centres of excellence
Client case studies
Advancing the CIO’s strategic agenda
Focus on Europe
Celent – the cost of OTC Derivatives Processing
NewsMatch
ISSUE 11 2008/9
SmartStream Technologies’ Magazine for the Financial Services Community
Take
Control
with Transaction Lifecycle Management
Creating a Reconciliation Utility
The drive for new Cash Management technology
Delivering new levels of efficiency to Treasury Confirmations
OTC Derivatives Processing – the building blocks to greater STP
®
2
Welcome to NewsMatch | CEO Comment
It’s been more than 12 months since the
credit crunch first came to light and its
impact is still unfolding. Firms of all sizes
are now operating in a new environment
where efficiency, risk and cost are
the watchwords.
Ken Archer
Chief Executive Officer,
SmartStream
The market conditions, with volume
spikes caused by ongoing uncertainty, have
impacted banks’ operations and highlighted
the need for efficient and cost-effective
practices. This situation has been further
compounded by the historic under
investment in the middle and back office
with many organisations lacking the systems
and processes to efficiently manage these
surges. This is particularly true in the more
complex OTC instruments increasingly
being used as firms look to diversify their
investment strategies.
It has also highlighted the difficulties faced
by firms in employing sufficient numbers of
skilled middle and back office staff in order
to manage and scale operations to meet
volume demand. Greater automation
removes many of these issues, replacing
inflexible processes with technology that
delivers a consolidated view of transactional
process, measuring risk across the enterprise.
While this combination of surging volumes
and the use of increasingly complex
instruments represents a significant
operational challenge to firms, it also creates
a catalyst for change. We are working with
our clients, including 75 of the world’s top
100 banks, to help them overcome critical
processing issues.
We have delivered highly flexible, volume
insensitive, transaction processing
environments to many of the world’s largest
financial institutions. SmartStream’s suite
of Transaction Lifecycle Management
(TLM) solutions has continued to evolve
beyond our traditional product set with
the introduction of TLM Trade Process
Management for OTC Derivatives Processing
and TLM Treasury Confirmations.
These developments are in direct response
to feedback from our customers and the
market in general, once again highlighting
the inherent flexibility of our TLM software
to efficiently deliver new solutions to the
market. Our service oriented architecture
(SOA) approach to building solutions,
the TLM Enterprise Control Architecture,
ensures that SmartStream can harness
proven components to rapidly develop
new solutions to meet emerging market
and regulatory challenges.
Eliminating the barriers to Straight Through Processing
through the delivery of enterprise wide, real-time
Transaction Lifecycle Management (TLM ) solutions
®
2
Welcome to NewsMatch
CEO comment
4
OTC derivatives processing
The building blocks to greater STP
6
Cash management
The road to efficient nostro and
corporate cash management
8
Treasury confirmations
Delivering scalability to treasury operations
10 TLM Enterprise Control Architecture
Advancing the CIO’s strategic agenda
12 Global news
14 Focus on Europe
15 Reconciliation utility
Efficiency through consolidation
16 Creating a centre of
excellence for reconciliations
Case study – Grupo Santander
NewsMatch
We have also seen success outside our
traditional core financial services market.
We are now examining how our TLM
technology can benefit other verticals and
industries, particularly within the finance
and treasury teams at corporates.
to deliver further depth and capacity to
our global implementation teams. Over the
next 12 months I expect to make further
announcements about new partnerships
that will continue to expand our services
offerings and capacity.
As business and technology needs change,
SmartStream is ideally placed to deliver
innovative solutions that match these
requirements. We are creating new service
models that deliver greater middle and
back office efficiency, both directly with
customers by powering internal utility
models and with external service providers.
We have worked extensively over the last
twelve months with one of the world’s
leading BPO providers, Tata Consulting
Services to develop and deliver an
outsourced reconciliations service, the
TCS Aspire Service. This service is now live
serving Deutsche Bank as its first client.
Under the ownership of DIFC Investments,
SmartStream is continuing to grow its global
footprint having successfully launched an
office serving the Middle Eastern market,
based within DIFC. This is delivering a
direct route to the rapidly expanding
Middle Eastern market and offers exciting
opportunities to deliver TLM solutions to
new and strategically important markets
and clients that we share.
To provide greater capacity to our existing
markets and to enter new geographies we
are building relationships with trusted third
parties. Our commitment to serve our global
client base with the highest level of service
has never been stronger. In addition to
expanding our existing Professional Services
teams we have created new partnerships
with leading specialists, including Syntel,
18 General Ledger reconciliations
Consistency, control & compliance
20 Executive viewpoint
A revolutionary utility
22 TLM Reconciliations product focus
Delivering unparalleled performance
focused events throughout the regions, oneon-one briefings and feedback forums.
This ongoing investment in people,
technology and processes has already
reaped significant rewards and we
believe will continue to do so as we move
forward in conjunction with our clients.
I hope you find this issue of NewsMatch
interesting and informative in understanding
how we can help you and your organisation
to reduce operational risk and cost and
deliver continual process improvement.
We have also made a significant investment
in the APAC region, with a new regional hub
based in Singapore. This will broaden and
strengthen our services throughout the
region, supporting our existing customers
more effectively and delivering a wider range
of solutions to meet that market’s needs.
Our focus has continued to be delivering
substantial value in the long-term
relationships we build with our clients
through operational excellence and greater
client intimacy. This has taken the form of
a customer satisfaction survey, customer-
24 Managing 400% volume
growth with ease
Case study – Challenger
26 OTC derivatives processing
Delivering automation to the buy-side
28 Cash management
Growing cash management in the Middle East
30 Building global networks to
support business challenges
Case study – Syntel
32 The path to derivatives automation
Thought leadership
34 Centralising reconciliations
Case study – VUB Banka
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4
Industry research | Celent
The building blocks
to greater STP
Celent, in research sponsored by SmartStream, has assessed
the overall cost structure for OTC derivatives processing and
the basis for a multi-asset STP processing solution.
8,000
OTC derivatives volumes have been rising
since the International Swaps and
Derivatives Association (ISDA) and the
Bank for International Settlements (BIS)
started keeping track of trade volumes and
notional principal traded at the end of the
last century. ISDA reports in their most
recent Operations Benchmarking Survey
that monthly volumes of OTC derivatives
grew 38 percent in 2007. The chart (Figure 1)
highlights the total number of ‘events’, laid
out by type of OTC derivative transaction
– interest rate, currency, credit, equity and
commodity. Here we see the startling
increase particularly in Credit Default Swaps
and similar credit derivatives (73% in 2007).
Regulatory attention has also been a strong
motivator to automate, but this has been
concentrated on a subset of the overall
7,283
Cre dit
Commodity
6,000
5,892
5,000
3,912
0
4,304
3,612
2,604
1,934
2005
2,798
2,878
2,177
883
3,741
3,406
2,707
2,000
1,000
E quity
4,147
4,000
3,000
Inte re st ra te
Curre ncy
7,000
Number of events
The starting point for Celent’s research
was to understand the drivers for OTC
derivatives post-trade automation and
ascertain if it was internal cost pressures,
increased regulatory attention or
greater prudence and an assessment
of operational risk within firms.
7,070
1,265
2006
2007
2008
Year
Figure 1: OTC Derivatives – Average monthly event volume by product
post-trade process. In March 2008, firms
representing three industry groups, with a
global view, sent a letter to the NY Federal
Reserve. The NY Fed has been leading an
initiative to improve the market infrastructure
for OTC derivatives. Several other regulators
have been involved with the process, notably
the UK Financial Services Authority. The ‘Fed
Letter’ is important in a number of respects:
It is the first time that buy-side institutions
have joined the Fed initiative, which was
primarily championed by the largest
dealers (Group of 14, now expanded to
be the Group of 18). Hedge funds have
also become part of the project.
The participants made commitments to
their regulator that they will automate what
are considered 2 of the most critical parts
of the processing chain – novation and
confirmation – and put firm dates against
these commitments. The timelines show
several milestones before year end 2008.
And last, but importantly, there are
prudential and operational risk concerns
that many firms have chosen to address.
As Celent states: “The main issues that have
propelled OTC derivatives to the forefront…
are the amount of losses that have been
incurred by the buy-side over the last decade.”
OTC derivatives processing
NewsMatch
Figure 2: Percentage of cost per trade
Percentage of Cost Per Trade
100%
80%
60%
40%
20%
0%
Interest rate
Credit
Equity
Celent’s findings
The Celent research discovered that the
cost of derivatives processing can be split
roughly 50/50 between allocation and
confirmation tasks, and post-confirmation
tasks, including settlement and collateral
management. Regulators, mindful of the
systemic and market risk issues, have placed
great emphasis on automating Notice of
Execution (NOE) and confirmations. But
the cost improvement opportunities fall
equally to settlement and post-settlement.
The Celent study, developed from detailed
interviews and proprietary data, identified
the building blocks of a multi-asset STP
solution and aimed to get beneath the covers
to assess the overall cost structure for OTC
derivatives processing, breaking out relative
costs across the different types of OTC
derivative transactions.
The chart (Figure 2) provides the Celent
analysis of relative costs for the different
parts of the operations chain.
Celent provides a framework for thinking
about automation, laying down the
principal goals of any automation initiative:
Process acceleration: This objective
relates to how fast an OTC derivatives
post-trade processing step can
be completed.
Processing error reduction: This
objective is concerned with the way to
eliminate costly human error from the
OTC derivatives post-trading process.
Processing capacity: This objective
relates to how many OTC derivatives
transactions an operations group can
complete within a certain period of time.
How will the industry and firms move
their automation ambitions forward?
Beyond the boundaries of the firm, Celent
observes that “buy-side demand points in
favour of centralisation and user communities.”
The report highlights the utility-like
approach of confirmations processing
platforms like DTCC’s Deriv/Serv and
Markit Wire. Celent observes that in the
future, “exchanges or even a group of
dealers may expand to assume the role of
central counterparty to some of the more
vanilla products that now trade OTC.”
In terms of spending priorities in order
to boost automation, Celent reveals that
based on their cost analysis and the detailed
executive interviews, buy-side firms will
“heavily emphasise the post-trade,
post-confirmation process.”
Within the boundaries of a firm, buy-side
executives are focused on flexible systems
which, according to Celent’s interviews,
“can accommodate or ‘plug in’ with existing
systems and offer workflow and trade
lifecycle monitoring.”
It’s clear from Celent’s assessment that if
firms are going to successfully negotiate the
challenge of OTC derivatives operations,
they’ll need a platform that provides the
flexibility to knit together the complex
series of events that make up the derivatives
processing chain.
To download an extract of the Celent
OTC Derivatives report, please visit:
www.smartstream-stp.com/otc-derivs
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6
The road to efficient nostro and
corporate cash management
Cash management solutions cover a wide spectrum of functionality,
from providing a value added service to major corporate customers
to managing organisations’ own nostro accounts.
Tim Martin
Senior Business Consultant,
SmartStream
At the heart of efficient cash management is real-time data, enabling
banks and corporates to more effectively manage their cash balances,
reduce unnecessary costs and increase returns from their balances.
Corporates driving
process improvements
Banks are under pressure to attract corporate
customers through the provision of new
tools and services that can improve the cash
flow journey. At the same time, customers are
demanding more of these services at a lower
overall price, squeezing margins even further.
Cash flow forecasting and cash pooling/
netting are critical services that demand
timely, rich data in order to maximise their
efficiency. So its little wonder banks are
wrestling with service issues when many
still rely on spreadsheets.
Corporate cash management demands are
acting as a catalyst for banks to examine
their cash management infrastructures to
deliver greater value. A knock-on effect is
that by delivering these services to clients,
banks can use similar processes internally
for nostro accounts. The final destination is
the same for both internal and corporate
cash management – more effective use of
cash and liquidity.
Nostro cash management
Cash projections and forecasting
Bank projects to streamline back office
processes can have a knock on effect on
their nostro cash management. With
transactions settling faster banks need to
fully understand the impact that can have in
the management of associated cash accounts.
Cash forecasting is a critical service, as
it supports the treasurer to deliver more
efficient cash handling and is an essential
ingredient in effective risk and liquidity
management.
The more complex nature of transactions
has also led to a wide variety of settlement
solutions being implemented, whether by
product or by region.
The nostro cash manager requires real-time
feeds of all cash flows at the start of the
transaction lifecycle rather than on value
date. To improve the accuracy of the balance,
updates are required during the transactions
lifecycle, in particular real-time advices of
credit or debit from the nostro agent
themselves in order to accurately measure
funding and liabilities.
Cash management
The corporate treasurer now uses more
complex instruments, including securities,
FX and derivatives to enhance returns. But
first they require accurate data to forecast
the core cash balance and available funds
that determine any investment decision.
As a result, the treasurer must ensure they
know where the cash is and how much is
available – and in which currency, location
or legal entity – at any given time. They
also require different data views in order to
forecast funds appropriately. This involves
maintaining a bird’s eye view of cash flows
with the ability to drill down into detail by
various parameters.
NewsMatch
Delivering proactive
intra-day cash management
Real-time data is critical to move away from
the traditional reactive cash management in
nostro accounts and for the delivery of new
services to corporates. A proactive, real-time
approach helps to eliminate the costs of
incurring unnecessary settlement and risk
exposure in the market.
Cash managers also require a single view
to monitor different cash status levels
within the nostro. This enables them to
determine the probability of settlement
failure and the risk of potential loss
resulting from the incorrect positioning
of currency balances. As a result the cost
of covering overdrafts is also reduced
by ensuring responsible parties are aware
of funding requirements as they occur,
enabling them to act faster and manage
balances more efficiently.
Improved visibility into cash exposure for
future value dates provides treasuries with
the information required to manage their
liquidity better. This potentially reduces
costs by allowing them to operate with more
efficient liquidity ratios and make better use
of collateral and resources. The treasurer can
then use the appropriate financing vehicles
or hedge strategies to effectively execute an
investment strategy.
The flexibility of drilling down from a bird’s
eye view to the transaction level also offers
other benefits. For example, the cash
manager can use the data to aggregate
balances by any means – currency, legal
entity, geography, line of business – and
view equivalent balances in any currency.
Critically, it would also enable a cash
manager to view opportunity costs and
calculations against account balances,
highlighting any revenue opportunities.
This could take the form of avoiding the
use of costly overdraft facilities when cash
resides in another account within the bank
or corporate. It could also mean drawing
attention to netting/pooling opportunities
to deliver a greater return on funds.
Using intra-day data can enable a bank to
provide forecasting functionality, extend
its corporate cash management service
and set it apart from the competition.
Providing secure browser-based access
back out to a corporate enables them to
monitor positions, report and project
using different scenarios.
Managing cash balances with statementbased data is a deeply flawed approach,
much like trying to drive a car by looking
in the rear-view mirror. Real-time data
creates a more proactive cash management
operation, from lowering operational
risk and cost, and improving cash and
liquidity management.
As corporate treasury teams and nostro
cash management teams continue to evolve
and gain in strategic importance they will
demand more efficient tools. The first step is
to break down silos through enterprise wide
real-time data. This undoubtedly presents
an operational and IT challenge for banks
but one that is definitely achievable.
7
8
Delivering scalability
to treasury operations
Designed to meet the transaction volume challenge, TLM Treasury
Confirmations enables banks to deliver new levels of efficiency to
their treasury operations. It provides greater control and visibility
into the confirmation of all treasury instruments, helping to deliver
lower operational costs and risk.
Treasury operations renovation at banks
– the overhaul of Treasury systems,
including those for confirmation matching
and reconciliation – is complemented by
the deepening of participation in FX and
related markets outside of the banking
arena. The key link between the two is
transaction volume growth.
In its last Triennial Survey, in 2007, the
Bank for International Settlements (BIS)
found that the overall market for FX
products had grown nearly 70% since
its previous review. Moreover, volumes
originated by hedge funds, mutual funds,
pension funds and insurance companies have
more than doubled over the same period as
these participants have looked to hold more
internationally diversified portfolios.
The second aspect to consider is increased
trading of more complex instruments such
as OTC derivatives. The BIS survey revealed
increases of more than 70% for FX and
interest rate derivatives classes. These
instruments necessitate distinct processing
requirements and their operational risk
profile is significantly higher.
Renovating treasury operations presents
some distinct challenges. Treasury
instruments already represent the biggest
traded market, with turnover in excess of
$3.2 trillion daily. Add on to that the
projected levels of growth and the additional
demands placed by complex derivatives
products, and it is easy to see why treasury
operations directors are re-evaluating their
supporting systems.
Renovating treasury operations requires
focusing on a number of goals:
Building a sustainable operations
environment that will carry the
firm through growth in transaction
volumes in coming years.
Ensuring the technology can handle
the complex processing demanded by
OTC derivatives.
Taking advantage of the new tools
available to understand the end-to-end
operational processes and provide the
management information to improve
the operation over time.
Treasury confirmations
TLM supports volume growth
TLM Treasury Confirmations delivers
comprehensive real-time, enterprise wide
matching and management of financial
instruments including FX and Money
Markets, Derivatives and Precious Metals.
Its wide range of both instrument and source
coverage supports treasury renovation
projects for all types of institution.
A critical characteristic of the treasury
operation is extreme high-volume processing.
The goals must therefore be to provide
scale for the future and reduce manual
intervention to an absolute minimum.
TLM Treasury Confirmations delivers a
highly scalable solution with the highest
automatch rates in the industry. Its
combination of multiple match passes,
the ability to both reconcile confirmation
messages in real-time and alert users to
outstanding confirmations as they occur,
drastically reduces the need for costly
manual intervention.
NewsMatch
Introducing an exceptions-based process
enables firms to create more proactive
treasury operations. When the initial
error is investigated and fixed manually,
TLM then finds all transactions with
the associated error and fixes them
automatically. This removes the need to
investigate and manually fix every single
transaction, further reducing effort and
cost. Where a naming convention is
involved, TLM Treasury Confirmations
learns the alias, improving data loading the
next time and matching it to the correct
transaction and counterparty information,
further improving processing efficiency.
TLM Treasury Confirmations
Continual process improvement must
be built into the new treasury platform.
The system must also be configurable –
from the data schema and match rules
through to the workflow and dashboard
– providing a basis for operations over
the coming years.
TLM Treasury Confirmations is designed
to be a dynamic solution, constantly
learning to further boost auto match rates
and avoid exception storms. It enables
firms to define and refine their match
rules and display confirmation and
exception data through a flexible thin
client user interface.
We have outlined some of the critical
elements for firms to consider as they set
out to ensure their treasury confirmations
and reconciliation platform match their
operational needs today and into the
future. TLM Treasury Confirmations
places treasury operations directors in the
strongest position to renovate and remove
both risk and cost from their organisation.
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10
Advancing the CIO’s
strategic agenda
Kulvinder Kandola
Development Director,
SmartStream
SmartStream’s R&D investments are directed at delivering a unified
architecture – the TLM Enterprise Control Architecture – supporting global
CIOs and their operations strategy.
Every year SmartStream invests about 15%
of total sales on Research & Development.
By comparison, Booz Allen reports that the
Global Innovation 1000 – those companies
considered the world’s innovation leaders
– average just 4.2% of sales spent on R&D.
SmartStream’s R&D investment is
concentrated in furthering the capabilities
that CIOs require of their strategic
operations platforms.
What are the architectural principles that
CIOs value? Each year, industry analyst
Gartner asks CIOs for their business
priorities for the year ahead. In 2008,
Gartner’s questions returned the Top 10
results (shown below). CIOs will continue
to tune their business processes, think
harder about getting new customers, make
sure their current customers remain loyal,
and pursue new markets – both by type
and geography. Crucially, they will attend
to these priorities with, in most cases, a
stable or even reduced IT budget.
Given these pressures and resulting business
priorities, CIOs and their IT leads have
looked to implement strategic operational
platforms that will advance the main
business priorities that CIOs have
identified to Gartner.
Source: Gartner
Top 10 Business Priorities 2008
Enterprise CIOs
All CIOs
Improving business processes
1
1
Attracting and retaining new customers
2
2
Expanding into new markets or geographies
3
4
Creating new products or services (innovation)
4
3
Reducing enterprise costs
5
5
Expanding current customer relationships
6
7
Increasing the use of information/analytics
7
8
Acquiring new companies and capabilities (M&A, etc.)
8
10
Targeting customers and markets more effectively
9
9
Improving enterprise workforce effectiveness
10
6
Strategic operations and modern
operations environments
Many CIOs look for a handful of essential
qualities when they define a strategic
operations platform:
Enterprise wide, crossing as many lines
of business as possible in order to
capture the greatest economies of scale
Extremely high performance and
highly resilient
Capable of being widely distributed, at
low cost, to support a mix of onshore,
offshore and outsourced operations
Adapt readily and quickly to change;
responsive to business pressures
Agile and transparent – giving visibility
to complex processing
Why an Enterprise
Control Architecture?
Over the last two years, SmartStream’s
technology investments have been driven
forward under the guiding principle of
Transaction Lifecycle Management (TLM)
and the unifying platform represented by
the TLM Enterprise Control Architecture.
The goal has been, first, to match the
platform’s capabilities with the enterprise
operations qualities that CIOs demand,
and second, create an environment where
SmartStream can become more efficient
in developing solutions, using common
services to speed time to market.
TLM Enterprise Control Architecture
NewsMatch
TLM Enterprise Control Architecture
The result: A unified architecture that
advances the business priorities of CIOs,
and offers the strongest Return on
Investment, at the point of implementation
and over time.
TLM Enterprise Control Architecture
TLM is SmartStream’s unique approach to
solving operations processing challenges for
our customers by understanding the end to
end transaction flow, and building control
through automation and visibility.
TLM Control is SmartStream’s Business
Process Management (BPM) layer,
providing integration with other systems,
the ability to transform and normalise
data; and workflow capabilities that
automate and connect people, processes
and systems.
TLM is founded on 4 key principles:
Manage transactions over their
entire lifecycle
Move to a real-time view of transactions
Establish an exceptions-based process
Create visibility into operational processes
The TLM approach brings important
benefits: risk and cost control; transparency
and predictability of processes; great
customer service; the agility and
responsiveness that means firms control
market and regulatory change, and speed
time to market for new functionality,
supporting their business priorities.
SmartStream delivers the benefits of
Transaction Lifecycle Management through
a unified technical infrastructure, the
TLM Enterprise Control Architecture.
TLM Common Services deliver
many of the functions used across all
SmartStream solutions. TLM Common
Services provide a unified approach to
solution development, with consistency
in the way services are applied; they
provide better and more predictable
integration with third party applications,
and give more value for our customer’s
investment by speeding time to market
for new functionality.
TLM WebConnect is SmartStream’s
Business Activity Management layer – a
functionally rich and flexible presentation
that shows underlying data in a way that
allows managers to understand, benchmark,
control and improve operational processes.
SmartStudio comprises SmartStream’s
configuration tools. Through SmartStudio,
customers extend the configuration of
SmartStream solutions to fit their
individual business processes.
Meeting CIO priorities
If we assess the business priorities uncovered
by Gartner, we find that the TLM Enterprise
Control Architecture is designed to provide
CIOs and IT leaders with the right tools to
get their jobs done.
It delivers an end to end process so that
control is exercised over it and process
improvement can be realised. It provides
firms with the ability to respond efficiently
to new customer demands and track
performance against expected customer
service levels.
The TLM Enterprise Control Architecture
is an agile platform that adapts to changing
markets and internal innovation. It is a
true enterprise platform, one that scales
to a CIO’s needs and captures the widest
possible economies of scale.
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12
Barclays Global Investors selects
TLM for processing utility
The decision by Barclays Global Investors (BGI) to invest in TLM Reconciliations was
to deliver a single processing utility for its global operations. The solution is being
rolled out across three countries, with BGI Australia’s operations the first to go live,
reconciling its cash and holdings transactions. Furthermore, BGI is using the solution’s
thin client user interface, TLM WebConnect, to provide a single window into the
reconciliations process.
Michael Garrett, Head of Operations at BGI, Australia, said: “We are continually
looking for methods to embed processes and controls that deliver greater efficiency to
the business. As a leading global institution, BGI needed a solution that was capable
of automating a variety of instrument and transaction types across the BGI group on
a daily basis. TLM Reconciliations matched those requirements, delivering a single,
scalable solution.”
Ongoing success at US buy-side firms
SmartStream’s TLM Reconciliations continues to be selected by leading US buy-side
organisations due to its ability to handle multiple instrument types while also offering
the scalability to process large volumes. The latest buy-side customer, a leading
US Investment Manager with a large alternative investment portfolio, is replacing
a mixture of legacy in-house systems and manual processes with TLM to create a
single reconciliations platform.
Lou Longhi, Managing Director - Americas, SmartStream Technologies, said: “Investment
Managers and hedge funds are some of the most innovative institutions in the financial
markets. However they are now finding that their existing operational processes no
longer provide the levels of visibility and risk control that they require to support their
investment strategies and deliver quality customer service. TLM can help these institutions
by replacing limited technology and automating manual processes to help reduce
operational risk and cost and increase control throughout the transaction lifecycle.
Kaupthing Singer & Friedlander automates
reconciliations, investigations and confirmations
Kaupthing Singer & Friedlander (S&F) is a specialist banking group offering products and
services in corporate and private banking, treasury and asset finance. Corona is being used
to automate reconciliations and exception management processes across the bank and its
S&F Investment Management (SFIM) subsidiary. The solution replaces its previously
manual processes and disparate systems, eliminating the need for re-keying information,
reducing errors and minimising risk.
Global news
Awarded the ‘Best
Corporate Actions Vendor’
SmartStream has been awarded ‘Best
Corporate Actions Vendor’ at the 2008
Inside Reference Data awards. “Our readers
voted for SmartStream as the best corporate
actions vendor, recognising the company
for its ability to help financial institutions
automate corporate actions processing
and improve efficiency,” said the Editor,
Tine Thoresen, “We introduced the best
corporate actions vendor category this year
as automating corporate actions processing
is continuously being pushed up the agenda
due to globalisation of financial markets,
increased complexity of notifications and
growing volumes of events.”
Customer selfservice delivered
over the internet
Raiffeisen Zentralbank Österreich AG (RZB),
has implemented TLM Corona to extend its
integrated reconciliation and investigation
capabilities to customers over the internet.
Using the TLM WebConnect thin client
solution as a secure browser interface, RZB
will enable customers to proactively raise
exception cases. This approach is designed
to reduce risk and cost for customers
across RZB and its 17 subsidiary banks
operating in Central and Eastern Europe.
“Clearly if we can reduce the costs in the
investigations department, we can deliver
a more cost-effective service to our clients,”
said Walfried Lemerz, Head of Transaction
Services, Infrastructure Department, RZB.
“We believe with TLM Corona we have
the solution that will enable us to deliver
greater self-service elements and efficient,
more personal customer service that will
differentiate us from other banks.”
NewsMatch
TLM to offer outsourced trade
process management services
Leading the way in
the Middle East
Recognising the importance of one of the
world’s fastest growing and dynamic financial
centres, SmartStream has opened its Dubai
office to serve the diverse financial
community in the Middle East. This is a
significant step for the firm’s ongoing direct
investment in the region. SmartStream will be
offering its range of market leading solutions,
already used by more than 75 of the world’s
top 100 banks, direct to the Middle Eastern
market. The company’s flexible software
design ensures it can rapidly deliver solutions
that can create more efficient, customerfocused, cost-effective, compliant operations
for the region’s financial institutions.
SmartStream’s office is based within the
landmark building, The Gate, home of the
Dubai International Financial Centre (DIFC).
This location, at the heart of a globally
important and rapidly expanding financial
centre, will enable SmartStream to quickly
gain momentum in the market, accessing
potential customers and partners as well as
opinion leaders from day one.
SmartStream launches
Treasury Confirmation solution
SmartStream’s TLM solution for Treasury
Confirmations has been designed to
deliver the highest auto match rates for
the full range of treasury instruments and
deal sources, combined with the enterprise
scalability to manage soaring volumes.
By replacing legacy applications and semimanual processes with a single solution,
TLM provides greater control and visibility
into the confirmation of any instrument,
helping to deliver lower operational costs
and risk. See pages 8 & 9 for more >
TLM Reconciliations is being implemented at Capita Financial Group Limited (CFG) to
build a common reconciliations platform to replace manual processes and deliver more
efficient exception management. TLM Control will replace the firm’s manual trade
capture to boost processing efficiency for its range of clients and increase Straight
Through Processing (STP) rates.
Karl Midl, Programme Director at CFG, commented: “TLM is enabling CFG to create a
global platform capable of processing all transactions irrespective of instrument type or
complexity. The implementation is part of our ongoing business transformation and
supports our commitment to delivering the most innovative and flexible services to
our clients.”
The TLM platform will automate disparate processes to deliver greater operational visibility,
drive out cost and enhance control. TLM WebConnect, SmartStream’s functionally rich web
portal included as part of the TLM platform, will be used to support rapid and cost-effective
deployment of the solution globally, and provide users with a consistent user interface.
Go-live for new Internet payments firm
Ivobank is a new online bank, based in London, specialising
in payments and money transfer services for businesses and
customers. Ivobank represents an alternative to the current payment providers and
combines the simple, fast and cost effective service of an online payments company
with all the benefits, peace of mind, security and privacy of a UK-licensed bank.
In order to launch, the bank needed a solution to reconcile cash entries on its general ledger
against the settlement bank account and the corresponding payment agent. Ivobank chose
TLM Reconciliations to ensure it had sufficient flexibility and scalability to grow as the
business transacted new currencies and volumes increased.
Further investment for Asia Pacific
SmartStream’s Asia Pacific operations, which cover Australia, New Zealand, China, India,
Japan, Korea and the ASEAN countries, has experienced significant growth over recent
years. This latest investment reflects both the company’s focus on serving the newly
expanded client base and recognition of the region’s continued economic growth.
Richard Cummings, who until recently successfully managed SmartStream’s operations in the
UK, will be responsible for leading the company’s investment in the region, commented, “It’s a
region I know well and one of the world’s most exciting markets. As firms across the geography
continue to grow at a rapid rate, there’s a real need for better operational risk and cost control.
SmartStream has already established itself as the de facto provider of Reconciliations and
Corporate Actions solutions, however many of the company’s latest solutions have yet to be
introduced to the region. Over the coming year we’ll be introducing solutions for cash and
liquidity management, treasury confirmations processing and trade process management.”
13
14
New horizons
In a geographically and culturally diverse region, SmartStream’s
localised approach enables the company to deliver operational
advantage to clients’ middle and back offices.
Christian Schiebl
Regional Director Europe,
SmartStream
The European financial services market
has historically been one of the most
dynamic with new industry initiatives
and EU regulations, providing a constant
catalyst for change. From Basel II through
to SEPA and beyond, SmartStream has a
long and successful history of supporting
Europe’s financial services organisations –
local banks, private financial institutions,
processing utilities and leading global
banks – to help them overcome their
operational challenges.
Our European headquarters in Vienna serve
as a hub for SmartStream’s eight European
offices that support the Western European
markets as well as the emerging markets
within Central and Eastern Europe (CEE).
It is also home to one of SmartStream’s
product development centres, focused on
our TLM Corona reconciliation and Trade
Finance solutions.
The Vienna product centre is continually
delivering leading edge technology to our
clients to support their evolving business.
For example, the Austrian RZB group
is using TLM Corona to service its
expanding presence in CEE through
15 subsidiary banks in the region. It is
using the solution’s web-based user
interface to deliver innovative self-service,
enabling customers to raise investigations
into payments.
Our local presence in Vienna, Frankfurt,
Dubai, Paris, Madrid, Milan, Zurich and
Luxembourg means we can effectively serve
the diverse and demanding financial services
community in the key European markets.
It also ensures we can build on our
personal relationships with existing and
new customers as a trusted partner,
understanding their business needs, local
requirements and technology issues.
In many Western European countries we
have an established presence through our
reconciliations solutions. As these markets
have evolved, so has our technology
through the provision of existing solutions
that offer the inherent flexibility and
scalability to manage changing market
and regulatory pressures.
We have also developed new solutions
to address specific processing challenges,
some of which you can read about in this
edition of NewsMatch. We are particularly
proud that our first TLM Trade Process
Management customer has gone live
in the region.
Focus on Europe
But we never stand still and we are looking
for expansion into new verticals such
as corporates, insurance or public
organisations. We are actively examining
new markets that could benefit from the
robust and proven software used by 1,000
clients globally, either through our network
of resellers or by opening direct operations.
We are committed to continue investing and
strengthening our operations throughout
EMEA to meet customers’ needs and to
become their long term strategic partner.
One of our most important recent
achievements in EMEA has been the
successful launch of our Middle East
operations. SmartStream has opened its
office at Dubai International Financial
Centre (DIFC), the heart of the Middle’s
Eastern financial services market, and have
already witnessed success in this strategically
important and fast growing market.
NewsMatch
15
Efficiency through consolidation
As institutions look to improve processing efficiency and deliver
greater economies of scale, the utility model is gaining momentum.
Taking an enterprise wide view of
reconciliation and exception management
functions is essential to achieving a
sustainable and competitively advantaged
operational environment. Reconciliation
utilities – sometimes referred to as
centres of excellence or shared services
– offer significant opportunities to
firms of all sizes to do just that.
In the rapidly evolving market of cyclical
trading volumes, new instruments,
industry initiatives and regulatory scrutiny,
firms need to evaluate new methods for
creating efficient post-trade operations.
As you will see on the following pages this
can be an internal centre of excellence as
developed by Santander, a global Top 10
bank, or through a full business process
outsourced service as provided by the
TCS Aspire Service. At the heart of both
approaches is SmartStream’s TLM
Reconciliations (see box out).
Why should you consider
a reconciliation utility?
Regardless of their scope, processing
utilities can deliver a more flexible use of
resources, lower cost structures, unified
technical platforms, sharing of best practice
and improved staff retention. They also give
managers a perspective on the process that
allows them to understand operational risk
and to build continual improvement into
reconciliation processing. Several firms
have seen a return on investment of up to
100% or more, and break-even within one
year with reconciliation utility projects.
This approach to reconciliation and
exception management through establishing
a central utility ensures a greater focus on
operational support functions. Moving
reconciliations from siloed, product or
geographic-based teams enhances their
ability to support core functions. Utility staff
can focus their expertise on reconciliations
and exception management to ensure they
are performed in an efficient, timely and
cost effective manner.
There is a clear technology advantage in
consolidating onto a single platform that
eliminates multiple vendor relationships.
It reduces maintenance overheads as
there is no longer a need to maintain
various software and databases. Data
feeds and communication links are more
easily managed.
Service levels can also improve by
moving to a utility model as client facing
operational teams within a utility become
subject experts delivering improved
capability to handle client exceptions and
reporting. The utility creates a positive
differentiator leading to more business
from existing clients and, potentially,
assists in bringing new clients to the firm.
This close relationship also enables
continual process improvement with
a feedback loop from the utility to
operations teams. Root cause reporting
on exceptions helps to identify transaction
or data elements that cause mis-matches.
Operational procedures can then be
amended to prevent such errors from
occurring in the future, improving client
satisfaction and overall efficiency.
TLM Reconciliations is the industry-leading Reconciliation Utility
platform delivering the full set of capabilities required for success.
Scalability and ultra-high performance
Ability to perform any kind of reconciliation – all instruments, positions and transactions
Fully flexible matching rules and the most advanced matching algorithm on the market
Workflow capabilities to extend automation capabilities through to exception
resolution and repair
Lowest cost and most flexible web-based user interface
Ability to monitor and control the end-to-end process, establish metrics, track and
report them, and improve operations accordingly
Ability to customise and change data, match rules, workflow and presentation quickly
and easily – continuously improving your operations
You can find more information about how SmartStream is helping to build firms
enterprise capabilities, including a white paper available for download:
www.smartstream-stp.com\recs-utility
Reconciliation
utility
Reconciliations
Utility
16
Case study | Santander
Creating a centre of
excellence for reconciliations
Mayte Valverde
Operational Model Manager,
Grupo Santander
Santander is introducing shared service centres across its business
to deliver operational best practice. Using TLM Reconciliations at its
centre, Santander has created a highly scalable centre of excellence,
consolidating processes and systems to reduce operational risk and
improve efficiency.
Spanish financial services firm Grupo
Santander is one of the world’s largest
banks, with 65 million customers globally
through a network of retail focused
banks. It is constantly examining how
to delivery greater efficiency in its
operations and benefit from economies
of scale through the use of common
platforms, such as its in-house developed
core banking system Parthenon.
As part of this strategy, Santander is
creating shared service centres where it
can develop and deliver operational best
practices across its subsidiaries, including
Banco Santander, Banesto and Abbey.
“With a fragmented back office
infrastructure of manual, semi-automated
and automated processes managed on
a business line and geographic basis,
reconciliations were chosen as the first
element to use the service centre model,”
explains Mayte Valverde, Operational
Model Manager, Grupo Santander.
“We had inconsistency in the way we
managed our back offices and wanted to
Case study
introduce single, consistent, scalable and
re-useable reconciliations processes across
our operations.”
Developing the shared
service centre
Reconciliations were selected due to their
business-critical nature, with Santander
estimating it could centralise up to six
million daily transactions. The project also
served as a blueprint for subsequent shared
centres that Santander is designing for
payments and reference data.
“The driver was to reduce risk through
more efficient reconciliations and reduce
cost by replacing multiple vendor and
in-house systems. This would ensure
Santander gained visibility into our
exceptions to better understand where
issues were occurring,” says Valverde.
Santander’s Spanish and Portuguese
operations already used SmartStream’s
Corona product, leading the bank to
investigate how the TLM Reconciliations
solution could manage the reconciliations
service. The bank undertook a rigorous
evaluation exercise involving stress testing to
ensure the solution could process large data
loads and a Proof of Concept for Santander’s
treasury team processing swaps.
Scalability was critical as Santander
continues to expand its branch network,
already the largest of any retail bank, and
drives greater volume through the service
centre, says Valverde.
“Santander was familiar with SmartStream
and we were impressed by the company, the
support it had provided on Corona and its
vision for the TLM solution. We compared
TLM against other vendors and it was clear
from the testing and data loading that it
was the best product for us to use as the
platform in our reconciliations shared
service centre,” she adds. “We also had to
take into account our global expansion
plans that would require new reconciliation
types in the future. That was a decisive
factor in choosing TLM as it offered the
flexibility to bring new business lines and
transactions into the centre.”
NewsMatch
[
The shared centre gives us a best-practice reconciliation
service in a standardised and centralised model. That
enables us to define the processes for different types of
reconciliations while having the flexibility to adapt to
local or business-specific requirements.
Delivering economies of scale
Santander’s shared service centre went live
on time and on budget in 2007. The centre,
with TLM at its core, is reconciling Grupo
Santander’s P&L records to produce timely
and accurate monthly reports for Bank of
Spain, and cash and securities reconciliations
for Banco Santander and Banesto in Spain.
The service centre is also being used by
Grupo Santander’s treasury departments
to process swaps, derivatives confirmations
and reconciliations for the risk management
department to provide data back to the
Bank of Spain.
“The shared centre gives us a best-practice
reconciliation service in a standardised
and centralised model. That enables us to
define the processes for different types of
reconciliations while having the flexibility
to adapt to local or business-specific
requirements,” says Valverde. “This process
specialisation delivers greater operational
efficiencies and enables the creation of
synergies and cost savings. For example, we
no longer have to maintain multiple systems,
pay for multiple licences or train people on
different systems. Our risk is also reduced
as we no longer rely on a mixture of manual
and semi-automated processes, depending
on where the transaction originated.”
Continual process improvement
By removing multiple systems and migrating
reconciliations into the shared centre,
Santander can measure its performance
more effectively and analyse where breaks
occur in particular transaction types,
business lines or branches. Valverde says
the bank is in a stronger position to measure
its exception management performance to
better understand where issues occur and
analyse where the service centre can add
greater value to its users.
“When we talk to various groups within
Santander to explain the centre’s benefits, the
ability to reduce risk through more effective
exception management always gets the most
interest,” she adds. “No one wants to spend
more time than is necessary to handle
growing exception volumes as their business
grows. We can demonstrate how those rates
can be improved by moving to TLM and
benefiting from the best-practices we’re
developing within the reconciliations centre.”
Santander is still evolving the service centre,
moving existing Corona users from its
Spanish and Portuguese business units and
examining other units and transaction types
that could be migrated.
“With SmartStream’s knowledgeable
consultants integrated into our team, we
are confident that the relationship between
both companies will continue to bear fruit,”
says Valverde “We were very impressed by
SmartStream’s passion, their vision for
TLM and how that will benefit Santander
long-term as we continue to develop the
shared service centre.”
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18
Consistency, control & compliance –
optimising General Ledger reconciliations
General Ledger (GL) reconciliations form a critical business control function and
yet for many organisations remain a manually intensive, fragmented task.
SmartStream spoke to UK-based insurers Norwich Union and Prudential
to discuss the benefits of automation.
Ben Wood | Financial Systems, Norwich Union
Chris Pallister | Finance TLM Technical Authority, Norwich Union
Steve Sharman | Finance Manager – Systems, Prudential
Russell Hatton | Senior Business Consultant, SmartStream
What are the biggest issues
around GL reconciliations?
Russell Hatton | Overall it’s a lack of
consistency due to an over reliance on
manually-intensive processes and a
fragmented infrastructure using Excel and
Access databases. When volumes start to
rise it impacts closure at month-end,
quarterly and year-end. There’s also an
issue around controls required for
Sarbanes-Oxley compliance as managers –
those legally responsible for signing off
accounts – lack visibility into the accuracy
or status of account reconciliations.
Steve Sharman | As a result of the number
and complexity of the systems there were
a number of different reconciliation tools
used and no consistent control standard or
methodology employed. The knock-on
effect of multiple tools is it prevents firms
from reducing overall staff costs, inflates
training costs and causes difficulties trying
to provide cover for unplanned absences.
Further they do not provide a secure or
robust environment for critical controls.
Chris Pallister | It’s a question of process.
We had multiple teams performing
reconciliations and multiple people within
those teams responsible for them, which
meant there was no standard approach. We
also became reliant on individuals within
those teams who were experts on what might
be causing a particular exception or could
second guess and reason for a mis-match.
The timeliness of reconciliations in order
to meet reporting deadlines and Service
Level Agreements (SLA) was critical.
Without visibility into outstanding items we
couldn’t re-direct resources to fix the issue
and we’d then be into the next monthly
cycle. Getting down to an exception level
was crucial to understanding what the issues
are and see if there was any missing data.
How does automation overcome
these issues?
Russell Hatton | Automation enables
firms to support much higher transaction
volumes, while also making the close
cycle more efficient. Advanced matching
capabilities achieve the highest match rates
and ease of configuring match rules
enables firms to introduce continuous
process improvement.
Ben Wood | We’re currently feeding in
around four million entries a month into
TLM Reconciliations. That simply
wouldn’t have been possible using Excel
and manual processing. And with volumes
rising we wanted a solution that could
introduce operational best-practice.
Steve Sharman | The ability to monitor
and review status of all reconciliations and
early warning of issues were definitely
uppermost in our minds. And of course
with that level of automation you’re
looking at cost saving opportunities and
the flexibility to offshore work.
General
Ledger reconciliations
Type here
NewsMatch
What are the business drivers
for automating the process?
Steve Sharman | Our GL reconciliations
are high volume, complex to manage and
control and a high resource overhead for
the company. We are constantly exploring
opportunities to enhance current processes.
Introducing TLM Reconciliations was seen
as a way to standardise the processes and
therefore reduce cost and create a fully
auditable, location independent
reconciliation capability.
demanding banking environments,
so we knew that it could meet our
business requirements.
What are the benefits that
automation brings to the GL
reconciliation process?
In addition to normal controls and audit
requirements the company needed to meet
Sarbanes Oxley regulations and demonstrate
effective controls are in place throughout
Finance. TLM is now a key tool in
maintaining this environment.
Russell Hatton | Automation creates
standardised and repeatable processes
through a common workflow-based tool.
Reconciliations are more efficient, helping
to reduce the cost per transaction and
overall operational cost, while also reducing
operational risk. The back office team’s
productivity is increased through the
introduction of a proactive, exceptions-based
process ensuring exception items are
efficiently prioritised and assigned for
swift resolution.
Chris Pallister | We wanted a solution
that was fully integrated supporting
reconciliations and exception management.
It needed to be a credible solution that was
proven to handle the volumes we were
already transacting and the expected
increase over the course of two to five
years. TLM is installed in some of the most
Chris Pallister | We’ve created a consistent
approach that demonstrates to the auditors
that we have systems and controls in place
to efficiently reconcile our books. We’ve
also improved the integrity of our
reconciliations by building rules around
how reconciliations should be performed
regardless of the user, team or location.
Ben Wood | It’s changed the emphasis of
reconciliations, enabling us to become
more proactive. Our staff are now
concentrating on the exception items and
repairing those, rather than purely
reconciling data. It’s also delivering
economies of scale to the business and a
decrease in unit costs because we’re able to
reconcile a higher volume of transactions
without increasing our head count.
Steve Sharman | TLM has significantly
improved the process through its powerful
matching processes and automation,
resulting in staff reductions within the
Finance area and increased controls.
It’s also easy to monitor the effectiveness
and maintenance of reconciliations,
providing increased confidence in controls
and early warning of issues. Most of the
users have embraced the benefits of TLM
once any early resistance has been resolved.
Further, TLM has been fully endorsed by
our auditors and that enables them to
verify balance and controls easily.
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20
A revolutionary utility
N. Ganapathy Subramaniam
President,
TCS Financial Solutions
The TCS Aspire Service, powered by SmartStream’s TLM
technology, offers cost-effective core and client-specific
reconciliations through an offshore utility model, removing
operational cost and risk.
At TCS, we are proud to say that we are efficiently managing the business of numerous
customers in diverse areas. We constantly review our outsourcing processes, seeking
improvement in quality, control and cost. In the course of these reviews and in our day-today work, it became clear to us that in the financial markets there was one underlying
process common to the majority of back office operations – reconciliations.
In addition to the traditional reconciliation of cash and securities, there are many
other reconciliations performed – front to back office, internal accounts, three-way
reconciliations between various systems, receivables, suspense accounts – the list
is endless. It was apparent that many of these reconciliations were often
performed on an ad-hoc basis using different technologies,
spreadsheets and, in some cases, entirely by manual effort.
The staff performing these activities were often not
dedicated specifically to reconciliation tasks
and as a result the reconciliations did
not receive the attention required
to achieve a properly
controlled process.
Executive viewpoint
NewsMatch
It was clear that a scalable, dedicated and ondemand reconciliation service to encompass
all these activities would be a great benefit to
the industry and something that many firms
were already seeking. Many companies have
created internal utility-based infrastructures
but are now looking to go further and
deliver even greater economies of scale.
We were confident that we had the
infrastructure, staff experience and
capacity to manage such an undertaking,
and our next challenge was to engage with
a partner to provide a suitable platform on
which to host these operations. SmartStream’s
TLM was a perfect fit.
SmartStream is a market leader in the
provision of reconciliation systems
solutions, and its highly configurable
TLM system was ideal for the service. This
combination of the leading reconciliations
software and our capabilities makes a
compelling business case.
As one would expect, the solution can
process standard cash and securities
reconciliations. But more importantly, it can
also be configured to reconcile any data-sets;
from a single ‘on and off’ account, through
‘one-to-one’ reconciliations to ‘one-to-many’
and ‘many-to-many’ data sets.
Matching rules can be written according to
the data sets being reconciled, enabling the
utility to achieve a high auto-match rate.
The workflow processes allow exception
items to be directly assigned for
investigation, while the flexible dashboards
provide instant access to the status or
reconciliation at any point in time.
The result is the TCS Aspire, an offshore
reconciliations processing utility. The
benefits of this new model cannot be
overestimated. A transaction can be
monitored throughout its lifecycle, from
trade to settlement date. Multi-way matching
allows a transaction to be viewed as a
whole, showing the components that
match and those that do not.
[
The experience of working with Deutsche Bank has
led to us introducing new reconciliation types into the
service while we are also actively working to bring
new customers on board.
Consequently, an error can be detected
before settlement date and rectified without
cost. Duplication of effort is also dramatically
reduced as many reconciliations can be
condensed into one.
Once a customer has signed up for the
service, they will immediately see a benefit.
They will no longer have to absorb data
centre costs or need to test system upgrades.
The TCS Aspire Service also guarantees full
disaster recovery, removing the cost of BCP
(Business Continuity Plan) site maintenance
and testing from the client.
The TCS Aspire Service also offers
on-demand scalability. In a scenario of
fluctuating volumes, staff need to be
recruited quickly during spikes, but they
tend to be under-utilised during volume
troughs. We have tailored the TCS Aspire
Service so that the customer only pays for
the optimum amount of staff required.
This, combined with the overall staff
reduction that is achieved from the
consolidation of reconciliations onto a single
platform in a Centre of Excellence, reduces
costs related to resourcing dramatically.
We estimate that savings of between 20
and 40 percent may be achieved on the
overall reconciliation operation.
The TCS Aspire Service also offers the
investigation of exceptions; in short, we can
manage the entire process from beginning to
end. We ensure that the customer has instant
access to the status of exception items. This
is achieved through TLM’s break chasing
functionality, where the user may add notes
and attach files to a case. The customer can
then review the status of breaks either online
via a dashboard or through daily reports.
Our first client, Deutsche Bank, readily
embraced outsourcing and already operated
a captive centre in India. Even so, their ROI
analysis demonstrated the benefits offered by
this service, and they were quick to engage
with us to further streamline their
reconciliations processes.
The experience of working with Deutsche
Bank has led to us introducing new
reconciliation types into the service while
we are also actively working to bring new
customers on board. Falling margins and
volatile markets can test even the most
robust back offices.
The TCS Aspire Service can deliver a new
method for lowering operational costs and
risk that will constantly evolve to meet
market, instrument and regulatory needs.
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22
Delivering unparalleled
performance
Neil Vernon discusses how TLM Reconciliations
is evolving to meet the scalability challenge.
Neil Vernon
Senior Product Manager,
SmartStream
TLM
Reconciliations
product focus
Type
here
NewsMatch
Two years ago I was in an elevator with one
of our regional directors when he asked:
“Our biggest clients need to process huge
and ever expanding volumes – how can we
solve the continuous issue of scalability?”
As with most elevator pitches, the
elevator ride was far shorter than the
subject demanded.
To begin answering the question requires
an understanding of what we mean by
scalability. We began by surveying our largest
reconciliation installations, by transaction
volume, and were told by clients that TLM
is already capable of processing their very
highest volumes.
When we probed further many of our
customers said they had lived through yearon-year double digit growth. One customer
predicted 100% volume growth from 2008
to 2009, even after or indeed perhaps
because of the effects of the credit crunch
and market volatility.
Yet 99% of our customers – representing a
cross section of Tier 1 to Tier 3 financial
institutions – have significantly lower
volumes. Even if they were to go through
huge year on year growth it will still take a
number of years before they are processing
at the level of their super-processing peers.
So volume alone isn’t the only consideration
around performance – we also have to look
at how to continue delivering the highest
possible automated match rates. Our most
thorough customer attempts to match
records using 125 different combinations
of data before raising an exception. When
increasing volumes are combined with a
determination to extract every last possible
correct match, it results in a data and
compute intensive problem.
While powerful hardware is now widely
available, software must be designed to
take advantage of that computational power.
The best practice approach in the technology
industry to ensure that applications make
maximum use of all available hardware is
to use a ‘space based architecture’.
TLM Reconciliations is developed from the
ground-up with this architecture and will
provide our customers with the assurance
that as their volumes grow and their match
rules become ever more complex the
matching engine will scale and deliver in
excess of the throughput required.
In the course of our customer research
we also found other challenges. With the
increasingly complex financial instruments
we need to ensure the item table contains
the right balance of attributes. The tactical
response to this request could be to add a
new field for customers, keeping each one
happy in the short-term but ultimately
adding more straws to the proverbial
camel’s back.
Our approach with TLM is to allow the
matching engine to run over any database
table (more correctly ‘Universe’). As a
result customers will be able to design the
perfect structure for their matching needs.
They will also be in complete control of the
data design with no constraints on what
can be matched at the database level. Of
course, for customers not wishing to take
advantage of this level of flexibility we
will still deliver packaged reconciliations
models that reduce this complexity and
execute over the existing item table.
TLM Reconciliations is a strategic
application for many of our clients
businesses. If an outage causes it to be
unavailable then for some customers
this can quickly lead to a suspension
of business. The existing architecture
provides for Active-Passive failover, i.e. a
production system can fail over to a disaster
recovery system in a matter of minutes.
But what if a ‘matter of minutes’ is not good
enough? TLM Reconciliations will be built
on an ‘Active-Active’ failover, providing for
seamless failover with no appreciable
degradation in service.
Performance tuning and maintenance is
another element we are enhancing within
TLM. For example, we will provide a
complete management console, enabling
staff familiar with the architecture to quickly
see how the matching engine is performing
with measurements against critical resource
usage to further fine tuning the system.
TLM Reconciliations is being used to
perform real-time reconciliations. Many
of our customers can truly claim to already
reconcile a transaction across its lifecycle
seconds after each lifecycle event. The latest
developments have been designed to
provide inherent real-time capabilities.
Configuring the engine to perform
real-time reconciliations will be as easy as
performing a batch-based reconciliation
whilst still exposing all the matching
capabilities that has made the TLM
matching engine the best in class.
It would have been quite an elevator ride in
order to fully explain the scalability need
and how SmartStream is continuing to
evolve TLM Reconciliations to deliver the
performance our clients want over the next
few years. Its combination of matching
against any data, in both real-time and batch
in a true always available environment will
deliver a matching service that extends way
beyond TLM Reconciliations into all of the
TLM solutions and ultimately into our
customers architectures. This will enable
the architecture to play a central role
as a matching service inside their own
application delivering even greater
cost and risk benefits to the client.
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24
Case study | Challenger
Managing 400% volume
growth with ease
Gary Hornery
Reconciliations Team Manager,
Challenger
Ross Gulliford
Technical Services Manager,
Challenger
With reconciliation volumes and complexity increasing,
Australian firm Challenger needed to automate its processes
to increase risk control and deliver more scalable operations.
Listed on the Australian Stock Exchange,
Challenger is a diversified financial
services organisation with circa $45
billion of assets under management
across its three business lines.
Challenger launched a project to automate
their reconciliations processes. “The number
of mandates was growing rapidly and the
types of reconciliations we had to perform
were increasing in terms of volume and
complexity. ‘One-to-many’ and ‘many-tomany’ matches were becoming common
place and spreadsheets couldn’t handle the
types of auto-matching coupled with the
significantly increased volumes.
We wanted to remove the risks around
the manual manipulation required in
spreadsheets to get items automatically
matched and keep the reconciliations up
to date. Eliminating the simpler, but timeintensive, reconciliations would enable us
to focus on investigating the true breaks
and greatly reduce the time taken for our
detection controls to kick in,” says Ross
Gulliford, Technical Services Manager
at Challenger.
Case study
The aim of the project was to use
Challenger’s reconciliations staff more
effectively while managing growing
volumes. Challenger wanted to automate as
many of the reconciliation processes as
possible, while providing staff with the tools
to undertake more strategic, value-added
work, such as exception management.
“The project was dubbed Chameleon
because Chameleons are known for
adapting, and that’s what was required in
terms of streamlining and automating the
reconciliation processes,” says Gulliford.
Gary Hornery, Manager of Challenger’s
reconciliations team says the choice of
solution was made easy by the fact that
SmartStream is the market leader, both
globally and in Australia.
“Having had a previous association with
SmartStream and the SSR product I was
able to fully recommend their software,”
he adds. “We looked at six RFPs and TLM
Reconciliations was chosen because of
SmartStream’s roadmap. A major part of
the decision was based on what we could
do together today and in the future.”
With TLM selected, the first task was to
load data from multiple systems, including
the registry system and investment
management system. The first phase of the
implementation covered internal accounts
including general ledger and accounts
payable – areas that would not affect
unit pricing.
Says Hornery: “The initial release was
rolled out within a week. After this, we
analysed the TLM log-ons to pinpoint
the areas that were meant to be using the
system and weren’t then simply turned the
spreadsheets off. They were a great tactical
tool and people loved them, but we knew
we couldn’t keep using spreadsheets with
the volume growth we expected.”
As with any project, says Hornery, user
acceptance was important. “We knew
TLM would make people’s lives easier and
wanted to demonstrate it in such a way
that it would gain acceptance,” he adds.
A ‘tongue-in-cheek’ video was produced
and toy Chameleons were handed out to
highlight the project implementation.
“We wanted to release with a bang, get the
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[
25
If we hadn’t chosen TLM, we would have
been in trouble as the spreadsheets and
paper just wouldn’t be able to handle
the volumes we are now experiencing
name out there and have fun with it. Now
there are toy Chameleons everywhere and
there’s a great feeling that the project has
been successful and is moving forward.”
Since that first phase, TLM Reconciliations
has been implemented on more than 1,000
accounts and is processing over 66,000
transactions per month for cash alone.
Throughout implementation Challenger
has had to interact with a number of third
parties, including JPMorgan and Macquarie
Bank. “Not one client was aware of the
transition; it was seamless” says Hornery.
The numbers, says Gulliford, speak for
themselves: “Since the project started,
the number of accounts we handle has
expanded by around 400% with a similar
increase in the volume of transactions we
reconcile, so scalability and flexibility have
been fundamental to its success,” he adds.
TLM has enabled Challenger to move
forward, says Gulliford, handling the huge
increase in transactional volume with the
same number of staff. “Often a project is
approached with questions like ‘how can we
cut costs and staff?’, but we went further
realising that it could have a positive
impact on day-to-day working lives. We
sought to position ourselves so that we
could significantly increase in size without
adding additional staff. This scalability is
key to our long term goals.”
“We wanted to remove the reams of
paper, rulers and highlighters to deliver
a streamlined working environment,
improving the way people can do their
job and providing a place to learn,” adds
Hornery. “We’ve had a lot of interest
from other teams within the Challenger
Group who want their people to work
in reconciliations for cross-training,
in order to understand the business.”
The TLM installation was initially
targeted at Challenger’s Investment
Services team, but is now becoming an
enterprise wide project. Gulliford says
other parts of Challenger’s business are
asking how TLM can help them achieve
their goals and they are looking to roll it
out to other divisions enabling automation
of the full reconciliation cycle between
Challenger’s third parties, critical source
systems and general ledger. “TLM is now
our third largest software install and we
intend to use it for much more than
matching stocks and cash,” he adds. “If we
hadn’t chosen TLM, we would have been in
trouble as the spreadsheets and paper just
wouldn’t be able to handle the volumes we
are now experiencing”.
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Delivering automation
to the buy-side
Mark Taylor
Business Development Director,
SmartStream
The explosive growth in OTC derivatives transactions seen
over the last five years shows no signs of abating.
Manual and semi-automated reconciliation
processes that could just about cope five
years ago are woefully inadequate today,
both in their ability to scale to meet volume
demands and process these increasingly
complex instruments.
Without intelligent business rules, these
systems can create huge volumes of
exceptions that can overwhelm even the
largest back office teams. They are then left
fire fighting rather than using their skills to
deliver customer-focused operations.
The buy-side community, so instrumental
in the growth of OTC derivatives, is now
looking to invest in automation, with the
Tabb Group estimating spends of up to
$70 million at some banks. While hedge
funds have tended to outsource transaction
processing, the buy-side still needs to
reconcile these transactions with its own
books in order to retain governance.
Duplication of effort creates risk
In today’s markets the current level of
duplication with manual processing is
unsustainable. With derivatives volumes
still rising across every contract type and
increasing instrument complexity, the
buy-side cannot afford to throw more
people at the back office, although this
is invariably what is done.
Where institutions have initiated a level of
automation, they have created multiple teams
and multiple systems creating operational
silos, making this inefficient and expensive
to maintain. This has a direct impact on the
bottom line, where visibility of cost-per-trade
is crucial.
As the front office looks to trade new
exotic instruments, organisations are not
able to process them because the middle
and back office are not geared to cope,
thereby creating processing bottlenecks.
The length of time taken to deploy
traditional technology with ‘dumb
gateways’ is expensive and error prone.
There is a perception that derivatives
contracts differ to such a degree that it is
difficult to define normal practice. While
they are certainly more complex than many
other instrument types, every contract
contains common elements that offer
opportunities for standardisation and
automation. Without greater automation,
truly effective risk management cannot
be achieved and firms will continue to
lack the visibility and control required
into transactions.
Delivering visibility into transactions
The perception from the buy-side is that
attempting to deliver automation for OTC
derivatives is not achievable due to the
complexity of the transactions. If any
attempt has been made to automate in this
area, it will be for either a specific sub-set
of instruments or a specific area, such as
confirmations of vanilla swaps.
This is achieved at present by bespoke
point applications covering these specific
areas and handing off the data to another
downstream system. As the business
grows, and the appetite for more exotic
/alternative instruments grows, the time
to market and to implement a new system
is incredibly long.
OTC derivatives processing
NewsMatch
OTC derivatives add further complexity due
to the unique nature of their lifecycle that
requires ongoing monitoring such as
periodic or regular payments that must be
calculated to take into account rates resetting.
There is an issue, particularly in credit
derivatives, where deals are novated.
We have seen plenty of buy-side firms
struggling to manage the novation process
with a combination of paper-based files
and spreadsheets that led to failed settlements.
Due to a lack of automation they could not
identify their counterparty and back office
teams spent time and effort tracking down
a specific instrument after multiple
novations had occurred.
While processing OTC derivatives is
undoubtedly complex there are a set of
core processes that can be automated to
deliver greater control, as there are common
elements across. By adopting a ‘layer-cake’
approach, of Validation, Affirmation/
Confirmation, Event Management and
Settlement, these horizontal stripes can be
automated as processing utilities within an
organisational structure that provides
economies of scale.
This layered approach to automation
means firms can implement new
innovative instruments, much like
adding additional blade servers into a
common architecture. By creating an
Affirmation/Confirmation processing
utility for all instrument types, with the
necessary business intelligent rules, allows
time-to-market for new instruments to
be processed in weeks rather than the
traditional months.
Firms can take this approach even further,
where these horizontal utilities cover all
traditional requirements as well, such as
equities, fixed income, FX and money
markets. This will enable a firm to
completely de-silo operationally, delivering
immense cost savings per trade due to the
removal of point solutions and greater
economies of scale.
Derivative trades that are currently low in
volume and considered exotic now will
eventually be commoditised and efficiently
processed in the future. By having utilities
in place to cover the common servicing
requirements of these new instruments,
delivers against time-to-market needs.
The advancements that ISDA has helped to
facilitate around vanilla derivatives products
has done much to aid back office processing.
However, the large volumes experienced
by the most sophisticated buy-side firms
and the increase in non-listed derivatives
business by both the boutique hedge fund
operations and larger asset managers still
require manual intervention.
The future of automation
for the buy-side
With outstanding confirmations still
increasing at an alarming rate – doubling
between 2006 and 2007 – the need for greater
automation is clear. More importantly it
is also achievable, acting as a catalyst for
creating more efficient operations.
Automation and the drive towards greater
STP for Affirmation/Confirmation, event
management and settlement of certain
derivative instruments are becoming
mandatory. This will only increase as the
buy-side uses market infrastructures such
as SWIFT, Markit Wire, DTCC Deriv/Serv
and T-Zero, who have created a number
of services using FpML as the de facto
standard for communicating trade data.
The win for the buy-side is to automate as
efficiently as possible and to understand
that these instruments can be automated
by central common servicing utilities.
This delivers both the cost per trade
reductions they are looking for in vanilla
instruments and the capability to effectively
process the more exotic versions increasingly
traded by their front office.
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28
Growing cash management
in the Middle East
Jason Turner
Product Manager,
SmartStream
Cash management, like most areas of human endeavour,
combines both unchanging guiding principles with constant
change and innovation. In a dynamic area such as the Middle East
banks must look to the future or risk falling behind.
The most significant recent change in the
Middle East took place in January this
year with the introduction of the Gulf
Cooperation Council (GCC) Common
Market. This was an evolution in the
integration of the Gulf customs union,
extending beyond the previous free
movement of goods and services to cover
labour, property, education and capital.
The developments in the GCC are often
compared to those in the European Union
(EU) over the last 40 years. In the EU, the
increase in the complexity of trading
networks led directly to growth in the
number of accounts under management,
in the levels of service required by
corporate customers and hence in the size
and complexity of the workload of cash
managers. The same trend is already
being seen within the GCC markets.
The Gulf economies have export rates
typically around 70%, driven largely by
oil. The success of the Common Market is
likely to depend on, and lead to, a marked
diversification in these economies. This
diversification will itself also lead to a
considerable increase in the workload on,
and opportunities for, cash managers and
the levels of service demanded.
The result of this will be to make cash
managers’ jobs more challenging, but also
more interesting, once the more mundane
work of handling the larger volumes has
been automated.
These factors create new opportunities
for banks in the area but also heighten the
risk of being left behind due to greater
competitive pressures. This change can
be a catalyst for building a stronger and
more profitable business, but demands a
commitment to a quality IT infrastructure.
The drive for new technology
Automation is central to handling rising
volumes and complexities, reducing the
risk of manual entry and re-keying of
information. Crucially, it frees up
experienced and talented cash managers for
the true value-added work of investigating
exceptions to ensure service levels are
Cash management
maintained and improved. With less time
spent on the menial tasks often required
by manually-intensive processing, they can
then concentrate on getting the best return
on customers’ cash and providing funds at
the best cost.
To achieve this, financial institutions in
the Middle East will need to ensure a
solid technology foundation for their
cash management operations based on
two key principles: the ability to scale to
meet greater volumes and the flexibility
to include both local and international
processing requirements.
Scalability is essential because volumes
will only grow and the solution must be
able to grow with them. A bank can then
take advantage of the continual decrease
in the cost of commodity computing
power to deliver matching growth
without exploding costs.
Institutions must look for a solution that
can fit their own IT environment and
business practices, as each customer brings
NewsMatch
[
While the pace of change in Middle Eastern cash
management is a challenge, it also provides an
opportunity to put in place solid foundations for growth.
their own unique requirements. To ensure
that a cash management solution can be
adopted within reasonable budgets and
without undue disruption, the solution
must be amenable to integration through
rich configuration tools.
A further advantage of a truly flexible cash
management solution is the ability to deal
with variety and fit coherently around
basic principles. Some customers will
seek strict adherence to Sharia financial
principles and a solution must be able to
properly enable non-interest-based cash
management over a range of mechanisms,
perhaps Bai’ al-Inah, Mudarabah or Qard
Hassan. Given that much of the rest of the
financial world is focused on the use of
market interest rates, a solution must
combine the two options cleanly together
without confusion to enable true crossborder cash management.
Flexibility around business rules and
workflows is critical, allowing the
introduction of new cash balance types,
new transaction types and new calculation
procedures depending on these.
Furthermore, institutions will need to
integrate the solution as simply as possible
into their internal source systems, so the
solution must map to almost any input
data format. This will ensure the solution
keeps up with constantly changing message
standards, such as the upcoming SWIFT
MX real-time cash management messages
in November 2008.
Integration with payments and ledger
systems is also essential, so outgoing
message support must also be flexible.
Finally, the solution must support visibility
into and control of the business processes,
which, given the variation in these processes,
means that it must enable institutions to
build business-specific screens, analysis
screens for managers and create reports.
If financial institutions in the region,
both local entities and the operations
of larger global players, want to ensure
future prosperity, it is essential to move
with the times.
While the pace of change in Middle
Eastern cash management is a challenge,
it also provides an opportunity to put
in place solid foundations for growth.
Central to that will be a flexible technology
that enables an institution both to align
with its guiding principles and to adapt
to an ever-changing world.
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30
Case Study | Syntel
Building global networks to
support business challenges
Keshav Murugesh
Chief Operating Officer,
Syntel
SmartStream has partnered with Syntel to deliver a range of
consulting and support services for its market-leading TLM
products. This will enable financial services firms, looking to
implement new solutions that deliver more cost-effective and
efficient back office operations, to gain a faster time to market.
Michigan-based Syntel is one of the world’s
largest professional services organisations,
with more than 12,000 skilled consultants
and IT specialists. The company has over
15,000 person years of experience in
financial services, with more than half of
its revenue derived from servicing some of
the world’s largest capital markets, banking
and insurance firms.
Professional services
NewsMatch
Keshav Murugesh, Syntel’s Chief Operating
Officer explains how the company wanted
to enhance the breadth of its existing
offering and create new services.
“It was clear that in order to develop the
business further Syntel needed to offer a
suite of focused transaction processing
solutions for financial services clients,”
he says. “We made a conscious decision
that Syntel should continue to deliver on
its core strengths as a services company
rather than developing and building its
own software packages.”
As a result, Syntel began researching
potential partners within financial services
that could provide the technology expertise
and experience needed to deliver on its
strategic vision. After speaking to existing
customers, other banking and capital
markets firms and industry analysts, Syntel
identified SmartStream as a natural fit.
“Looking at who is leading the way in the
middle and back office technology space,
SmartStream was the obvious partner to
expand our footprint and provide our
customers with proven, scalable solutions,”
says Murugesh. “They are known for
providing technology that is robust,
scalable, and flexible enough to meet the
needs of our demanding global clients.”
Creating the partnership
With an increasing number of TLM
solutions being implemented globally,
SmartStream wanted to choose a proven,
scalable and trusted partner to ensure
the best possible implementation of its
software. As part of this strategy, it met
with Syntel to discuss methods for
expanding the professional services team
and delivering new implementation
models to introduce a new set of costeffective service offerings to clients.
“Our experience in managing TLM
implementations meant that we knew how
to add value to SmartStream clients and
could expand this relationship further to
encompass a full professional services
offering,” explains Murugesh.
A team of consultants were trained by
SmartStream at Syntel’s 77-acre Pune
Technology Campus in India, during a
week-long workshop covering TLM
Reconciliations and TLM Corporate
Actions. SmartStream’s customers can now
access a global pool of skilled consultants
and professional services staff who are
familiar with TLM software and can assist
them in fully utilising the market-leading
technology they have installed.
Global delivery reduces
time to market
Central to the partnership is the
development of a blended global delivery
model, taking advantage of SmartStream
and Syntel’s onsite and offshore teams to
deliver flexible and scalable services.
This approach has two key benefits.
Projects can be delivered at optimal cost
because the client project team no longer
needs to be based entirely on-site. A core
team works at the client location, while
coding and testing work takes place at
one of Syntel’s global delivery centres.
“There is a clear cost advantage to using
a client-based team and a connected team
in Mumbai or Chennai,” says Murugesh.
“It gives the client the comfort of having
a project manager across the hallway and
the cost advantages of globally distributed
resources, without compromising the
quality of the finished product.”
The second benefit is providing clients
with access to a larger talent pool. Syntel
has developed a series of best practice
methodologies used at some of the largest
global financial institutions, creating a
“SWAT team” of consultants who are ready
to move from India to the customer site and
back whenever they are needed. As a result,
projects can utilise time differences to
continuously build, test and refine solutions.
“This blended global delivery approach is
a proven and scalable methodology that
delivers true value to the end customer,”
Murugesh explains. “For clients this
approach means a lower project cost and
more efficient resourcing, delivering a faster
time to market. Our deep experience in
capital markets and financial services gives
us an understanding of what customers
want and expect, and we have the skills
and knowledge to deliver high quality,
high value services.”
Developing new opportunities
With transaction volumes continuing to
accelerate and instrument complexity
increasing, SmartStream’s clients want to
ensure their middle and back offices are
as efficient as possible. To help overcome
these operational challenges, Syntel and
SmartStream are examining opportunities
to expand the relationship beyond
professional services to include new
products and solutions, and provide
additional services.
“The SmartStream partnership is a
constantly evolving relationship, and we
are now looking to see where we can add
further value,” says Murugesh. “The market
is changing and clients are focusing on core
competencies, and we intend to meet that
demand by leveraging our skills to deliver
additional value.”
SmartStream and our partners create
and build compelling solutions and
services that enable our customers
to gain operational advantage.
We recognise a partner’s expertise,
and how and where it complements
SmartStream’s vision to ensure
together we can build meaningful
and stronger strategic partnerships.
By leveraging our complementary
skills and experience we can deliver
greater efficiency to the transaction
lifecycle for every type of organisation.
SmartStream has created a Partner
Program to invest in strategic
relationships and create an ecosystem
that delivers innovation and value
to existing and new clients.
To learn more please visit:
www.smartstream-stp.com/partners
Partner Program
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The path to
derivatives automation
Front office trading strategies are increasingly constrained by
the back office’s ability to process OTC derivatives and other
structured products. SmartStream and two leading derivatives
consultancies discuss the path to greater automation and the
barriers that stand in the way.
Are firms doing enough to monitor
their risk exposures in the middle
and back office?
Steve Miller | No they’re not and the
inherent problems in post-trade processing
of OTCs have been well-known for some
time. Most firms don’t know what their
exposures are. This is one of the
fundamental issues because trades can be
novated and the exposure shifts silently
from one counterparty to another.
Sean Sprackling | All too often financial
organisations focus on the calculation
of investment risk to the detriment of
operational risk exposures. Industry
participants now realise that operational
efficiency and other risk mitigating factors
such as collateral management
are as important a focus as daily VaR
calculations and stress testing.
Where do the weakest links lie?
Grant Cooper | The weakest link is the
lack of integrated architecture, or at least
architecture that can understand the
whole suite of products. So there’s a lot of
duplication of work in getting both front
and back office systems (if one exists) in
synch. The operations teams who manage
the process are also often under-skilled
in these products, leaving more scope
for errors.
Sean Sprackling | The weakest links in
gaining an enterprise wide view of a firm’s
risk profile are, firstly, ensuring that each
derivative is independently priced in a
timely and accurate fashion. Secondly,
it’s also in being able to incorporate
that valuation in a form that is useful
to management. Often this may mean
presenting data at a number of levels –
individual positions, trading strategy,
portfolio and enterprise wide.
Thought leadership
Sean Sprackling
Partner,
Investment Solutions Consultants LLP
Grant Cooper
Partner,
Capital Black
Is the buy-side significantly behind
the sell-side in terms of coping
with the processing of complex
and structured products?
Steve Miller | Sell-side firms have
historically made much wider use of
derivative instruments. That said, it usually
means that they have ploughed large
amounts of money into building bespoke,
in-house solutions that are often not
flexible or future-proofed enough to cope
with the diversity of demands now placed
on them.
Sean Sprackling | It’s a myth to think that
the sell-side has it all sown up as the spike
in outstanding confirmations last summer
proved. The difference is the buy-side has
just started its journey down the road of
full automation.
Grant Cooper | I’d say the buy-side is
currently anywhere between five and
nine years behind the sell-side in the
way that it processes derivatives.
NewsMatch
Steve Miller
Senior Product Manager,
SmartStream
What needs to change to put STP
higher up the priority list?
What are the barriers to STP in the
derivatives area for buy-side firms?
Sean Sprackling | Finding experienced
resources is part of the problem. People are
now starting to realise that having a fully
automated operating model for derivatives
requires significant thought and planning
to achieve.
Grant Cooper | It’s cultural as they’ve
never had to scrutinise and control a
process as closely as this before. Then
there’s the fear of change because the buyside are not used to the cycle of change in
the same way as the sell-side. This means
solutions tend to be significantly more
conservative adding manual ‘checks’ which
in real terms add no value and just remove
any benefits that technology can provide.
Steve Miller | The most compelling driver
of all is competitive pressure. Buy-side firms
are losing ground where they cannot move
quickly into new markets and asset classes.
Grant Cooper | There is a larger part
which is a lack of understanding by
management of the issues, solutions
and STP possibilities.
However, as STP rates are becoming a
precursor to gaining new business it is
gaining greater management attention.
Higher rates mean new products can be
handled more easily and hence clients
are willing to invest if a firm is viewed as
able to provide better product coverage
and flexibility.
Steve Miller | There are two huge operational
barriers: the continual use of faxes and firms
having spreadsheets all over the place.
Have firms merely been bolting
on additional functionality to allow
their equities systems to cope
with other products?
Sean Sprackling | Historically many firms
have tried to shoehorn derivatives into
their existing, equity-based systems.
This is slowly being replaced by a
realisation that selling products that
require significant derivatives volumes
requires a best-of-breed approach.
Grant Cooper | Yes they have and its not
the way to do it. Traditional equities
systems are completely the wrong toolset
to drive a strategic solution for derivatives.
Are firms taking a long-term
view or is it a case of trying to
manage/overcome current issues?
Steve Miller | The front office will always
attract the lion’s share of investment, and
in the middle and back office it will usually
be a case of plugging the gaps for least cost
as opposed to grand strategic vision.
Grant Cooper | The problem most asset
managers have is that they struggle to
comprehend the current processing nuances
of derivative products and so the future
products are just too exotic to contemplate.
It comes back to outlook; where a bank
would look at the next 10 years of products,
an asset manager struggles to get past 18
months of product development.
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34
Centralising reconciliations
to deliver greater back
office efficiency
Slovakia’s VUB Banka has created a single reconciliations
team using SmartStream’s Corona at its head office in
Bratislava, halving the number of reconciliations staff
needed. This has delivered greater visibility into a
critical control function, while also enabling the bank
to efficiently manage its continued expansion.
VUB Banka, the second largest bank in
Slovakia, is a subsidiary of Italy’s Intesa
Sanpaolo and has witnessed substantial
growth over the last five years with assets
rising by 10% year-on-year. This has been
due, in part, to the introduction of new
distribution channels that has led to
higher volumes, accelerated profits and
greater profitability.
The bank has quickly gained a reputation as
one of the fastest growing and most efficient
banks in Europe. As part of its expansion
plans, VUB is enhancing its services across
its retail, corporate and capital markets
operations through the provision of new
and enhanced products and services.
To support its vision of becoming a key
player in Central European financial services,
VUB required scalable technology that
could meet current processing demands
and provide a foundation to take on
further volume, instruments and
currencies in the future.
Case study
VUB reconciled nostro accounts, domestic
and foreign payments, alongside various
types of internal accounts for control
purposes such as a cash deposits and
withdrawals. “We process large volumes for a
bank of our size and we were conscious that
as we continued to expand new instruments
and transactions would need to be processed
efficiently and reconciliation complexity would
increase,” explains Ivan Golian, Executive
Director IT and Operations, at VUB.
adopts the Euro, so Corona’s ability to
already process this currency was a big
advantage. It also provided new dashboards
that simply and clearly delivered data to
end users and management.”
After examining potential solutions, VUB
decided to migrate to the latest version
of SmartStream’s Corona. The bank was
familiar with Corona, having used it to
successfully deliver high levels of automation
across its cash and nostro accounts.
As part of this project, VUB also took the
opportunity to consolidate its back office
operations into a single team using Corona
at the bank’s headquarters in Bratislava.
Previously, as a result of rapid expansion,
staff in both the head office and branch
network performed reconciliations along
with other back office tasks such as
accounting and in-house finance. This
meant at any one time VUB had around
200 people with a responsibility for
reconciling transactions.
“Migrating to the latest version of
Corona was a natural step in evolving our
operations due to its ability to reconcile
multiple instruments,” says Juraj Turek,
Project Manager at VUB. “We needed to
ensure our operations would match our
ambitions as the business expanded and we
respond to market and regulatory changes.
For example, in 2009 the Slovak market
Moving its reconciliations over to Corona
has also enabled VUB to move to daily
reconciliations within its centralised team,
with staff focused on any outstanding
items that it was not possible to match
automatically. The bank now processes
close to two million transactions a day
using Corona, peaking above four million
during month-end.
NewsMatch
35
www.smartstream-stp.com
UK – Head Office
St Helen’s
1 Undershaft
London
EC3A 8EE
Tel +44 (0)20 7898 0600
UK – Product Centre
1690 Park Avenue
Aztec Avenue
Almondsbury
Bristol
BS32 4RA
Tel +44 (0)1454 617020
Australia
3 Spring Street
Level 12
Suite 5
Sydney NSW 2000
Tel +61 (0)2 8249 4359
“With the new reconciliations structure
VUB now has a single team performing a
critical control function. There is a central
pool of skilled back office staff focused
purely on reconciling transactions rather
than a number of different tasks. Response
times have improved as they use the new
functionality within Corona and the daily
effort to manage reconciliations has been
reduced,” says Jiřina Moravkova, Head of
Global Reconciliation Department at VUB.
VUB’s consolidated reconciliations
team has been the catalyst for business
transformation. Branch staff can now
concentrate on delivering critical customer
service tasks rather than multiple front
and back office responsibilities. As a result,
the reconciliation team is also now more
efficient and requires fewer staff, says
Golian. “Corona has enabled us to
redesign the structure of data entering
the system, which has resulted in a more
efficient reconciliations process. This has
meant we have saved a total of 20 FTE
staff,” he adds.
However, the benefits of this single
reconciliations function go beyond
FTE savings, with VUB monitoring its
reconciliations to deliver continual
processing improvement. “The matching
improvements delivered by the latest
version of Corona have supported complex
reconciliation cases and thus more types of
accounts to be processed,” Golian explains.
“We also use Corona Investigations to
track the outstanding items, which has
contributed to improving the overall
quality of reconciliation. With more
transactional detail now processed and kept
in Corona, we can create and analyse our
transactions using Corona’s inquiries and
reports to continually improve our processes.
It has also decreased load on our other
systems, including the General Ledger.”
VUB is now looking at supporting new
instruments and reconciliation types. For
example, as the retail business continues to
expand VUB wants to create detailed debit
card reconciliations that match the details
received from card companies with the
transactions of customer accounts.
Austria
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Wienerbergstrasse 11
1100 Vienna
Tel +43 (0)1 313 54 0
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Room 1251
12th Floor
Beijing
Excel Center
No.6, Wudinghou Street
Xicheng District
Beijing, 100140
Tel +86 (10) 8800 3752
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33, rue Galilée
75116 Paris
Tel +33 1 444355 54
Germany
An der Welle 4
60322 Frankfurt am Main
Tel +49 (0)69 7593 8103
India
Unit 7, Plot 15
Western Industrial
Co-Operative Estate Ltd
MIDC
Andheri East
Mumbai 400 093
Tel +91 22 6641 2525
Italy
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20131 Milano
Tel +39 02 742 09 41
Luxembourg
33 Boulevard Prince Henri
L-1724 Luxembourg
Tel +352 26 63 48 10
Singapore
70 Anson Road
#26-01 Hub Synergy Point
079905 Singapore
Tel +65 6 224 76 89
Spain
c/ Goya, 15 - 6º drcha.
28001 Madrid
Tel +34 91 598 49 30
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CH-8008 Zürich
Tel +41 (0) 43 488 37 58
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DIFC
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The Gate
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Dubai
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Suite 2824
NY 10006
Tel +1 212 763 6500
USA – South America
250 N.E. 25th Street
Miami
Florida 33139
Tel +1 212 763 6500
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* The Banker, July 2008