Solutions: Post-Trade

deputy head of strategy, SunGard’s capital markets business

OTC DERIVATIVES, HOLISTIC DATA AND STANDARD REPORTING: A VIDEO INTERVIEW WITH FINEXTRA

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Author: Tony Scianna, executive vice president, SunGard’s brokerage & clearance business

During a recent trip to snowy London, I was fortunate to finally meet Finextra’s Liz Lumley in person. As the multimedia and special projects editor, Liz conducted a brief video interview with me that is now live on the Finextra site.

In the video, you will see us discuss several topics that I believe are only going to become a bigger conversation as we move into 2011. This includes the move toward central counterparty clearing of OTC derivatives; the imperative for centralized, holistic, real-time data aggregation; and on-demand, standardized reporting. I may sound like a broken record, but when it comes to the new financial regulatory landscape, we are still just beginning to learn what the regulators have in mind for the industry in the coming months and years.

Click the video below to watch (it will take you to Finextra’s website) and then join the conversation that Liz and I have started. Here on this blog, I’d encourage you to comment on a few relevant questions: What are your thoughts regarding the move to central clearing of OTC derivatives? Do you agree with Liz that the notion of a centralized, holistic, real-time view of your data and risk may be “mythical?” This time next year, how will this conversation sound different?

deputy head of strategy, SunGard’s capital markets business

MANAGING RISK AND EXPOSURE IN THE NEW REGULATORY ENVIRONMENT

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Author: Tony Scianna, executive vice president, SunGard’s brokerage & clearance business

We have discussed the new regulatory environment quite a bit in our blogs, and I’d like to offer another resource to learn about our perspectives at SunGard Brokerage & Clearance. We recently published a new white paper that discusses today’s data management challenges and ways to solve them by taking an enterprise-wide approach to your data and risk management strategies.

Click here to download Managing Risk and Exposure in the New Regulatory Environment.

When it comes to data management, there are significant challenges to overcome. At many firms, multiple systems perform the same function, leading to duplicated and fragmented processes.  Often systems don’t – or can’t – interface with each other, making it easy to overlook key information and miss inconsistencies. This publication from the Financial Stability Board discusses these data and risk management challenges as well.

All too often, firms are not collecting the data that regulators will require – in fact, they may not even know where to find it. This includes near real-time reports across geography and asset classes and a deeper and broader range of information, from trades and quotes to phone calls, instant messages and earnings reports. And as I’ve said before, it won’t be long before tomorrow will truly no longer be good enough.

So how can you best prepare and plan for the future? The data management infrastructure should be able to aggregate data from multiple source systems, normalize it and consolidate it into a real-time stream that can feed any downstream system. You can then create a real-time view to show your firm-wide risk and exposure, deliver whatever data is required to the regulators, and answer requests from senior management quickly and accurately.

Of course, this blog post can only touch on a few points; you will have to read the paper for yourself for all of the details. I encourage you to share your thoughts with us here in the comments section and to make your voice heard in this timely and important discussion. I will leave you with a few questions to consider as you read Managing Risk and Exposure in the New Regulatory Environment:

  • Are your systems ready to comply with the new regulations?
  • Can you report on your data in real time?
  • Can you identify data management opportunities beyond the regulations?

I look forward to your feedback.

executive vice president, post-trade derivatives, SunGard's capital markets business

THE NEW OTC REGULATIONS AND YOU

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Author: Laurent Jacquemin, global head of post-trade services, SunGard

Over the next two to three years meat is going to be put on the bones of both the US ‘Dodd/Frank’ legislation and the proposals of the European Commission. The precise shape of the regulation is still unclear but I thought it would be useful to think about the most likely ways in which financial markets will be impacted.

Systemic risk is believed to have been a main reason for the crisis and certainly needs to be addressed.  In 2008 less than 50% of OTC transactions were confirmed electronically and there is no OTC derivative asset class that has aggregate post-trade workflow automation greater than 57% whereas in exchange-traded derivatives straight-through-processing rates can be close to 100%.

So it is inevitable that the clearing of most OTC transactions will soon be required.  The use of central counterparties can reduce systemic risk by increasing transparency, increasing operational efficiency and decreasing counterparty risk.

Further, it is clear that as many transactions as possible will be required to be traded and confirmed electronically and that all trades will have to be reported to a trade repository.

However, under both the European and US legislation, it is still unclear precisely which contracts will be deemed as ‘eligible’ to be cleared and a central counterparty used.

What contracts will be clear-able?

A study by Morgan Stanley tried to estimate the ‘clearability’ of the OTC asset classes. Credit derivatives appeared the most clearable (probably because they are already quite regulated and standardised) whereas FX products seemed to be much more difficult to clear or to standardise.

The same is found when it comes to the question as to which current OTC derivative contracts will become exchange-traded: studies report it is thought to be quite likely with credit derivatives but less so with FX and equity-linked derivatives because of the bespoke nature of the products.

Additionally, with the greater complexity of OTC products there is the problem of the implementation of valuation and risk calculation methods by clearing houses; there will be considerable time and investment required to develop the correct margining methods and of course, even when they are in place, clearing houses will have to ensure that they also have the processing capacity to cope with the huge volumes that will flow through them.

Impacts for market participants

But, in my opinion, it is in reporting to regulators that participants will be most impacted: risk exposure will need to be reported to regulators intraday or on-demand. This means that existing reporting systems will need to be seriously enhanced or new reporting systems put in place. In order to address the risk management and reporting issues market participants will need to rely on a new generation of tools to get a holistic view of risk exposure across assets and systems. Technology is going to be vital.

For more information, read the related SunGard City Day London article.

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SOCIAL MEDIA AND THE COLLABORATIVE CULTURE

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Author: Gerry Murphy, former president, SunGard

Lately I have been thinking more and more about how to best use social media and the many new collaborative communication technologies that are available today. For me, social media extends into many different spheres, including innovation, service, organizational culture and diversity. It is about finding and embracing new and more efficient ways to collaborate, create and work more productively as a business.

We are already seeing significant adoption of new communication technologies within our organization, such as Yammer, secure instant messaging and real-time video sharing. I firmly believe that the adoption of and potential for social media will only grow in the coming years.

Recently, SunGard’s CEO Cristóbal Conde spoke at a conference organized by the Economist about this topic, and his talk was captured in a blog post. Cris gets to the heart of what it means to create a “collaborative culture” stemming from the availability of new communication tools that have created what he calls an “idea ecosystem.” I want to share part of his talk here, as it echoes some of my own beliefs about where we are headed in terms of social media and business.

Now, an important culture shift has taken place as information technology revolutionized the way people communicate, gain knowledge and work. In turn, it’s created a new “idea ecosystem” that has unlocked a massive reserve of human potential and, just as important, growth, for corporations.

…

Creating a collaborative culture is also a challenge that requires the right mindset and tools to flourish. Why should people collaborate? How do leaders establish a collaborative spirit in dispersed, competitive environments? In truth, the how is much simpler: by using tools that enable rapid communication, like email, Yammer, Twitter and other social media platforms that allow people to talk to each other quickly and trade ideas that they can develop into decisions.

Read the article in its entirety here: How flattening your company multiplies intelligence.

What are your thoughts on a collaborative business culture? What are the greatest challenges arising from this shift? What is the role of social media in all of this?

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REGULATORY PERSPECTIVES: THE IMPORTANCE OF STRONG COMMUNITY IN UNCERTAIN TIMES

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Author: Scott Foster, SunGard

As the conversations continue around what will happen next for the financial industry as a result of Dodd-Frank and Basel III, there remains a sense of uncertainty in the air. Firms are grappling with the task of preparing for the new regulatory reality that we will all soon face. There are a lot of questions, but not enough answers yet.

One way that some firms are setting themselves up for success is by ensuring they are part of a strong, reliable community. Even though there is widespread ambiguity, firms that are working with a community of experts and resources can rely on the strength of their vendors rather than go it alone. Vendors that can provide vast resources in the form of expert product teams, thought leadership, professional services and a deep well of shared industry experience to draw from offer the type of strong community that firms can lean on. Pushing forward as a group moves the whole community forward with more confidence.

Think about it: you wouldn’t try to scale the peaks of Mount Everest alone – you’d seek out a seasoned group of mountain climbers to train and climb with. You likely wouldn’t attempt to build a house from scratch on your own – you’d enlist a team of architects, carpenters, engineers, electricians and so on to create a sturdy and secure structure. I believe the same approach should hold true when it comes to financial regulatory reform.

How are you preparing to meet the challenges of the new regulations? Are you allying yourself with a community of experts to plan for success? I am interested to hear your thoughts.

Photo: Mountain Monarch Adventures

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WHAT WE’RE READING: SEPTEMBER 14, 2010

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Author: Gerry Murphy, former president, SunGard

Today I wanted to share a few links to articles and blog posts that we have been reading here at SunGard brokerage & clearance. If you would like to share articles you have been reading, please add those links in the comments section.

Factbox: G20 Progress on Financial Regulation from Reuters: An overview of the global rules comprised in Basel III.

Basel III: Emerging Market Banks Get Off Lightly, For Now from the Financial Times BeyondBrics Blog: “The global standards announced on Sunday apply worldwide and could affect the long-term shape of banking in emerging markets.”

Principle, Bravery, and the X Factor from the Harvard Business Review Blog: A discussion about taking chances on innovative ideas and bravely sticking to inspired principles.

Was the Great Panic of 2008 Preventable? from the Washington Post: An opinion piece that asks the question: “What if the government had saved Lehman?”

Manage Risk Up! From Mark McDonald’s Gartner Blog: Gartner group vice president looks at different approaches to risk management.

Likeability: It’s an Inside Job from OPEN Forum: A discussion of how likeability is a key factor in business and how to up your likeability factor.

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8 WAYS TO ACHIEVE INNOVATION

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Author: Gerry Murphy, former president, SunGard

Most people probably think of innovation as the process of creating something new. What some may not realize is that invention is just one type of innovation. There are multiple ways to be innovative in your business. As we face a changed landscape, we should all be thinking about different kinds of innovation and what makes sense for your business.

In thinking about this topic, I gathered some ideas from Raj Mahajan, president of SunGard’s trading segment. Like me, Raj has been contemplating the challenges and opportunities around innovation quite a bit this year, and I appreciate his input. I also gathered additional ideas from the brokerage & clearance team and came up with 8 ways to achieve innovation:

1. Innovation through new product generation or invention: Perhaps the most obvious form of innovation, this comes through creating something from scratch.

2. Innovation through product enhancement: This is another common type of innovation: finding ways to improve upon the products your organization already has in its arsenal. This may mean adding a useful feature or changing an existing one.

3. Innovation through acquisition: Another way to achieve innovation is to diversify and strengthen your organization through acquisition. This is a popular choice for many organizations.

4. Innovation through business model adaptation: Adapting your business model is a way to innovate at your organization that can change how you deliver and how customers may procure your offerings. One of the ways this is being achieved at many organizations today is through the implementation of SaaS solutions.

5. Innovation through experience: Loosely related to innovation through product enhancement, this powerful form of innovation involves finding ways to improve or augment your customers’ experience. This model could cover new services, more streamlined workflow, automation, relationship management, and more.

6. Innovation through ideation: Before innovation can be achieved, you need to find the ideas that can spur that innovation. One place to focus is on gathering and filtering ideas about how to improve.

7. Innovation through execution: You may have gathered some great new ideas about what to change, but if you cannot execute on those ideas, then you will not fully achieve innovation. I read an interesting Harvard Business Review blog recently entitled “Innovation is Not Creativity” that goes deeper into this concept.

8. Innovation through collaboration: While similar to innovation through ideation, the concept of collaborative innovation takes this a step further. Gathering ideas from a wider set of people – whether employees or another group – and then giving them the opportunity to shape the ideas by combining their diverse perspectives can be a powerful way to spur innovation and develop smart plans to execute and achieve your goals.

Certainly, not every innovation style works for every organization or business. But I believe that in changing times, it is important to look for new ways to grow, improve and adapt.

Would add anything else to this list? What types of innovation make sense for your business? Do you stick with what you know you’re good at, or do you prefer to stretch yourself to achieve a new form of innovation?

deputy head of strategy, SunGard’s capital markets business

SUNGARD IN THE CITY: LONDON CITY DAY 2010

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Author: Tony Scianna, executive vice president, SunGard’s brokerage & clearance business

This year’s SunGard City Day in London comes at a pivotal time for our industry. 2010 is proving to be an eventful year of change, and there is no better time than now to get bright thinkers together to discuss the future of the industry and global financial systems.

London City Day – which takes place on September 23, 2010 at the Brewery – will feature some fascinating speakers, including Xavier Rolet, chief executive of the London Stock Exchange Group, and Sir Howard Davies, director at the London School of Economics and Political Science. They will be joined during the general session by the Financial Times journalist Jeremy Grant.

The event is sure to echo themes we’ve been hearing our customers discuss all year – transparency, efficiency and networks. In the context of TEN, London City Day plans to cover:

  • Financial regulation and its effects
  • OTC central clearing
  • Centralizing post-trade communication
  • Real-time data and reporting
  • Managing the post-trade lifecycle
  • Automated vs. manual back-office processes
  • Risk management
  • The new role of the middle office
  • Post-MiFID challenges

And don’t forget that City Days are a great place to connect with your peers and with SunGard experts directly. I will be there myself, speaking in particular about derivatives and streamlining communication between all parties involved in the post-trade lifecycle. Bring your questions, your opinions and your new ideas.

I look forward to seeing you in London.

deputy head of strategy, SunGard’s capital markets business

DERIVATIVES DISCUSSION GROUP ON LINKEDIN

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Author: Tony Scianna, executive vice president, SunGard’s brokerage & clearance business

With the passage of financial regulatory reform, the derivatives industry has become a hotter and more newsworthy topic than ever before. Now there are new questions to address and there will be new challenges for derivatives industry professionals to solve and overcome as we all move forward. There’s a lot to talk about.

In the spirit of networks and collaboration, we have recently created a LinkedIn group to bring derivatives industry professionals together to discuss questions, challenges, and ongoing news in one focused place. The Cliq: A Derivatives Discussion is designed to foster conversation around derivatives industry issues, from the front- to the back-office, and as it grows, will be an interactive resource for aggregated news and discussion relevant to the community. To join the group, simply click here.

You’ll see some fledgling conversations have already begun among your peers. Weigh in with your opinions, share articles you find interesting, pose questions to the group, and help to shape this new group with your voice and expertise.

I look forward to you being a part of this industry discussion from the beginning.

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ON INTERCONNECTEDNESS AND NETWORKS

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Author: Scott Foster, executive vice president, SunGard’s brokerage & clearance business

This year, you may have noticed that we are focusing heavily on the acronym TEN, which stands for Transparency, Efficiency, and Networks. If you are a regular reader of the brokerage & clearance blog, you’ll note that we often publish posts that discuss the themes of transparency and efficiency. Today we’ll give some attention to the N of TEN – the importance of networks in reshaping the financial markets.

After reflecting on notes from recent events, as well as the fact that we’re already more than halfway through 2010, I’ve given some thought to networks as a driving factor in business this year.

We can communicate with colleagues, clients, industry thought leaders and influencers from anywhere in the world with a click of a mouse or a push of a button. With this new ease of communication, it seems that we can form and maintain more relationships than ever before. Some people might say that this dilutes those relationships, but others recognize that networking is actually easier and more convenient. For example, you can update your status on LinkedIn, and your contacts are automatically notified – you don’t have to send out a mass e-mail anymore.

LinkedIn also exemplifies the new model of networks. It works as a traditional type of networking – making individual connections, many of which are based on existing face-to-face relationships – and gives you the ability to participate in and create virtual social and trade groups.

This is exciting, yet it also gives rise to new complexities.

Technology, which is a big part of why the markets are so interconnected today, is driving us into unexplored regions.  Our networks are becoming more expansive, more global, and more complicated than ever before. And this amplified interconnectedness underscores the greater need for transparency of financial activities, as it is impossible to make sense of systemic risk if you cannot see the data.

Now let me ask you, where do you stand on the spectrum of opinion? Is today’s interconnectedness a positive for business, or do you see complex networks as a negative? When you think of how networks are shaping today’s industry, what first comes to mind?