Front office functionality: “It’s a small world after all”

A bit corny, but that was the song, yes the one written for the Disney ride, I had playing in my head on and off about this front office functionality webinar. Not because I thought the webinar was anywhere near as annoying as that song (I’m hoping any parent that has waited for up to 2 hours in line with young children for this ride, likely multiple times, can empathize with me here), quite the contrary.  It’s just the bizarre way my brain chose to process what both the webinar and the song reminded me of, world cohesion. 

We had representation from the Nordics with our valued client, Storebrand Asset Management, from North America with Rory Moran and myself, and from literally around the world with all the clients and industry participants that were listening in.  In fact, we received the following feedback from a SimCorp client, Angus Adamson, Business Solutions Manager at Challenger Limited in Sydney right after the webinar, “I found this webinar to be really useful. Being on the other side of the world makes it quite hard to attend gatherings to hear how other clients use the system. I picked up four or five new things that will be really beneficial once we upgrade.”

This webinar was originally organized to achieve the following:

1. Give an overview of SimCorp’s front office solution
2. Have Storebrand discuss their specific usage and benefits of the platform
3. Provide a live demo of the functionality to show our front office in action

But what brought so much more to the table was hearing front office global participants collaborating on requirements and usage, pointing out that these are not as different from region to region as some like to profess.

For starters, we ran a pre-webinar survey with registrants and identified a few shared challenges and needs global investment management firms were facing so they could be addressed during the webinar. The results included:

• A mere 14% had 100% confidence in the accuracy of their real-time positions and cash
• 58% were unable to get real-time pre-trade compliance and run scenarios and stress testing to apply ad-hoc strategies from a single platform/dashboard
• 61% did not have fully automated/integrated and exception-based compliance management
• 63% preferred best in class connectivity in an EMS over a single, locally embedded offering

"Though the mountains divide and the oceans are wide…." 

After giving a brief introduction to the three components that comprise our front office platform (Compliance Manager, Asset Manager and Order Manager), I was free to listen into the rest of the discussion. The title of this section was the verse of the song that came to mind as Storebrand began going through their use of Compliance and Asset Manager and how similar it was to the requirements and needs I’ve been hearing for the past several years from the North American market, where I reside.

When you think about it, our global clients are seeking standardization across regions to the greatest extent possible. I was just on a call where one of our largest global clients spoke about their recent front office implementation and they were asked what the differences were across their front offices using our platform. The response was that the processes were very much the same and they have purposefully organized it to work in this manner to achieve the greatest level of efficiency. The main things their regional front offices are individually tied to are their relevant market exchange hours and any specific regulatory considerations.

Compliance:

Aleksander Baklund, a Front Office Business Analyst at Storebrand in Norway, kicked off the discussion around their usage of Compliance Manager. This is certainly one area where you’d expect a lot of diversity due to varying regulation from region to region. The gist, however, was that while specific rules can and will be different, how those individual rules are ideally maintained and reported are quite common. Plus, existing regional libraries can be leveraged over and over. Storebrand have set up two exception-based dashboards to monitor their daily compliance:

1. Compliance Today – Gives an overview of all rules and statuses (including data imports)
2. FX Report – Shared between Asset Manager and Compliance Manager (helps in dialogue with their FX trading desk)

They used to have an in-house compliance system and the flexibility of SimCorp’s platform offers significant operational benefits by comparison, including the ability to:

• Reduce report processing time by ½ hour every day
• Assign multiple rules to a portfolio using simple drag and drop and drill-through capability
• Create a color status wheel for simple indication of processing status – the fully integrated front office, allows you to see this real-time in both Asset and Compliance Manager
• Greatly simplify rule definition making it much quicker to view and apply rules and their meaning, replacing their previous hard coding

Portfolio Management:

Aleksander also went through their set up in Asset Manager, SimCorp’s portfolio management tool, for the initial rollout of the platform for the Fixed Income team, saying that, “The fixed income team’s implementation took three months to get the first PM live on SimCorp Dimension.”  The feature/functions he mentioned as key were:

• Instant updates of key ratios when simulations are run at any level on any component (issuer, rating, sector, concentrations, etc.)
• Segregate and aggregate results at multiple levels
• Easily change views using sub layouts (i.e. from credit view to more issuer based, rating focused)
• Fully integrated Compliance view, letting them see how close they are to the min/max limits on their FI Instruments
• Graphics reuse in drill down of a portfolio and single investments (across portfolios)
• Create a done deal transaction straight off a simulation “without any hassle”

Robert Johansson was our next speaker and works as a Solution Architect for Storebrand. He talked about the full trade order flow for their FX instruments (spots, forwards and swaps). They have licensed Order Manager and are in the early stages of implementation. This workflow was again very familiar, where they start with simulations, apply their pre-defined boundaries (using FX hedge ratio), orders are created in Asset Manager or FX All (they use to create FX forwards on a future date), aggregated and then sent to one of their execution platforms:  FXALL, BB TSOX, or TCM (their fund share system).

Order Management:

One other interesting point to note regarding this global unity song I had playing in my head was that Storebrand (based in Norway) had been using CRD for order management (a best of breed product for order management that does 68% of their business, based on client numbers, in North America). This statistic really puts into question the need to have a system that’s domiciled and focused on the requirements of the region, given they had been using CRD for several years. In any case, they have now completed their testing of SimCorp Dimension’s Order Manager for FX, finding it to meet all their functionality requirements, and plan to put this into production in short order. They’ll move on to their equity setup and testing from there. When asked how transitioning from a best of breed system to an enterprise system will help them, Robert responded, “It was important for us to bridge the gap internally between operations and our front office, while ensuring we still had all the functionality we did in our best of breed system.  We have succeeded in doing that with SimCorp’s front office solution.”

“There’s so much that we share that it's time we’re aware”

Rory Moran, one of our resident SimCorp North American front office experts, was the maestro that followed up the Storebrand discussion and rounded out the songs verses. He gave a thorough demo of the three front office modules, focusing on the interactions among them and the benefits achieved with a fully integrated platform. He orchestrated the balance of standardization and flexibility for customization that makes a single, global, platform possible. So, for those that need to see it to believe it, this was their opportunity.

When showing Asset Manager, Rory pointed out that, “All portfolio construction and analysis is done in one place. Regardless of where they are in the world, they can utilize a common dashboard with integrated risk analysis, pre/post compliance results, out for collateral, maturity and all cash impacts/projections.”  So even though they may be speaking a different language, they are speaking a common one on the platform. At the same time, they can customize it using widgets for what they want to see, what they want to permit others to see, how often they want the data to update (seconds, minutes, etc.), what portfolio sleeves are locked from trading, what charts they want to embed for portfolio analysis. For example, if FX exposure is important, the user can build out a currency exposure chart and trade off of what they see by drilling in and connecting to the relevant best of breed execution platform (i.e. FXALL, etc.). They can also customize their portfolio sheet to slice, dice and group portfolio information the way they want (currency, instrument type, duration bucket, etc.).

Rory used the example of a compliance breach to show how seamlessly the trading desk works with portfolio management. When a portfolio manager has adjusted the weightings and requested new trades, the trader is automatically notified. He goes into Order Manager and sees all the restrictions and that there’s an option to aggregate. He accepts the requests, sells, and allocates.

Following the same example, Rory also went into Compliance Manager and showed the original compliance rule that was set up (no more than 5% in BICs) and showed the same compliance alerts dashboard that was in Asset Manager, uniting two areas of workflow together. Portfolio Manager and Compliance Officer have access to the same information at the same time. The alerts are apelet based and priority can be assigned and changed on the fly, adding notes where desired.

Chorus

The song and the ride started to wind down at this point, but as I read the multiple questions coming in from around the world for Rory, such as,

• Can you implement the three modules without the rest of the product suite?
• Can you do time series within the transaction and security master?
• Can you dynamically calculate new weights, compare it to the target portfolio, and apply tolerance levels to see if you are in breach?
• Can you use the platform for liability and cost at risk?
• Etc.,

the chorus was still playing softly in the back of my mind.  In short, the answer to the above familiar questions in each case was a resounding “yes”, whether you were from North America, Amsterdam, Switzerland or the Cayman Islands, which is where these questions came from. The point being this, the front office jobs we do and the issues and challenges we face are similar across the globe.  Significant effort and strides have been and continue to be made to create global standards and bring down operational barriers that inhibit getting the job done. Modern technology that follows suit and applies standards at the core, yet allows for firm specialization and an individualized growth strategy, will prevail in the end. For those influencing and working within the front office that are a bit regionally focused and still questioning whether one global system can be used for them and their specific requirements, I’d recommend they keep in mind that it is indeed “a small world after all” and have a look at what is currently available.