Solutions: Post-Trade

deputy head of strategy, SunGard’s capital markets business

OPRISK: THOUGHTS ON ENTERPRISE RISK MANAGEMENT

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

This week I joined a group of my peers at FTF’s one-day 4th Annual OpRisk Workshop in New York.   There were several speakers there sharing ideas and insight about risk, and I was fortunate enough to join Ilene Harker of Western Asset Management, Kate Leibfried of Citi and moderator Paul Zubulake of Aite Group on a panel called Enterprise Risk Management: Obstacles and Benefits.

Of course I am biased, but I believe the panel represented a timely and important discussion around enterprise risk and how critical ERM is today.  In this blog post I wanted to share some points and ideas from the panel that may spark new questions and conversations around risk:

  • Risk and exposure are more important now than ever. Today, we need to make sure we can get a holistic view of enterprise risk, which is complicated due to different asset classes, silos, etc.  Still, the critical task is to know how to put it all together and be able to show your CEO the firm’s exposure to any given counterparty or country.
  • Managers need to look at Key Risk Indicators and assess trends, issues and data to open a dialog with senior management and engage them in risk talk.
  • Regarding regulation, we still don’t know exactly what will happen, but everyone knows things will change.  Real-time will be very important; it won’t be enough to provide reports at the end of the month.  Getting and managing data in real-time and putting it together is just the first step.  Once that’s done, we need to determine how to assess and use the data when it comes to risk management.
  • Right now it’s important to focus on establishing standards, understanding them and talking internally about risk.
  • Creating standards and aggregating data will help, but it isn’t that simple.

What looming questions do you have when it comes to enterprise risk management?  What is the best first step to take?  How are you preparing for new regulations when it comes to ERM?  Use the comments section to join the risk conversation.

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FIA BOCA: TAKEAWAYS FROM CFTC CHAIRMAN GENSLER’S KEYNOTE

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Author: Rich Hulit, executive vice president, SunGard’s brokerage & clearance business

Last Thursday, I joined a full room at the FIA Expo in Boca Raton for CFTC Chairman Gary Gensler’s keynote speech.  If you have been keeping up with Gensler’s recent speeches, you know that he is a passionate supporter of increasing transparency in the over-the-counter derivatives market through explicit regulation and the movement of OTC contracts to clearinghouses.  On Thursday his speech highlighted these calls to action once again.

I believe transparency and a new regulatory climate will transform our industry, and therefore found Gensler’s keynote particularly compelling.

Gensler utilized an interesting story to give context to his speech.  He used the historical example of how the Great Chicago Fire (possibly started by Mrs. O’Leary’s cow) prompted new building codes in Chicago to frame today’s financial crisis prompting the need for a different sort of “building code.” We all know that new regulations are coming and that they will change how financial firms operate and report, however it isn’t as simple as making sure our buildings aren’t made from matchsticks.  While regulatory bodies and lobbyists work to determine what our new “building codes” for the derivatives markets should be, I expect our industry to be rebuilt on a solid foundation of transparency and supported by the right steel-beam regulations to prevent financial fires in the future.

Across SunGard Financial Systems, there is a strong belief that transparency is and will be one of the most important drivers in our industry this year.  You’ve seen Gerry Murphy, Tony Scianna and me blog about the topic before, and throughout the year I bet we will revisit this topic again.  When we are talking about risk, regulation and new changes moving us forward as an industry, transparency will be at the heart of these conversations.

Were you at the FIA Expo last week, and did you attend Gensler’s keynote?  What did you take away from his speech?  Did his “building code” story resonate with you?  Please leave a comment with your ideas and opinions.

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COST BASIS REPORTING: THE QUESTIONS YOU NEED TO ASK NOW

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Author: Rich Hulit, executive vice president, SunGard’s brokerage & clearance business

According to respected industry analysts from TowerGroup, financial services institutions are “vastly underestimating” the impending customer service expenses related to cost basis reporting requirements.  That suggests that firms need to start preparing now, because January 1, 2011 will approach quickly – you simply cannot afford to wait to solidify your cost basis reporting plans.

Let’s put this in context with some background information.

In a December 2009 article titled “The Urgency and High Price of New Cost Basis Reporting Law,” Melanie Rodier of Wall Street & Technology wrote:

The new cost basis law effectively means that starting Jan. 1, 2011, brokerage firms will have to start reporting on clients’ tax statements the gains and losses realized on their investments. They will also have to transfer cost basis information — the purchase price of the security plus any fees and commissions — when a client moves his or her account to a new brokerage firm, according to a report from TowerGroup. Experts say this will initiate a major upheaval in the way brokers report to clients.

Likewise, Chris Kentouris outlines the new policies in the December 2009 Securities Industry News article “IRS Issues New Guidelines for Cost-Basis Reporting” and stresses how quickly these changes will become reality for U.S. financial firms:

The new policies will be effective as of January 1, 2011 for equity shares purchased after that date. By January 1, 2012 financial intermediaries and asset managers will have to do so for mutual funds and dividend reinvestment plans. By January 1, 2013 other financial instruments, such as debt issues, options and private placements must comply.

Clearly, these are not simple issues, and compliance will affect customer service, technology, training, communications and ultimately – costs. To help you figure out the best plan of attack, consider these questions:

  • Are you prepared to track the cost basis of future purchases?
  • Does your strategy include both implementing cost basis reporting software and integrating it with your existing back-office and tax reporting information applications?
  • Have you begun preparing your staff and senior management for the changes?
  • Are you willing to provide your clients with this information only on the lots for which you have a statutory requirement?

These questions are critical, and all point to the need for adequate and effective planning and preparation.  We at SunGard are ready and equipped to help now.  Are your plans in place?

Do you have questions to add to the list above?  When it comes to cost basis reporting, what is your most significant concern?  Have you begun preparing for these changes?

deputy head of strategy, SunGard’s capital markets business

WHAT IS YOUR BIGGEST CHALLENGE IN POST-TRADE DERIVATIVES PROCESSING?

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

I recently opened a poll on my LinkedIn network, and I wanted to share it on the brokerage & clearance blog as well.

In my perspective, this poll tackles an important question for those on either side of derivatives transactions: What is your biggest challenge in post-trade derivatives processing?

If you’re interested, please take a moment to participate by choosing your answer on LinkedIn.  If your answer to the question isn’t represented in the choices, leave me a comment with your most significant pain point regarding derivatives processing.

If these issues are important to you and your business, I hope to see you in Chicago on February 25 for the SunGard and Aite Group derivatives breakfast meeting, where I’ll be speaking about this topic.

I look forward to your responses and feedback.  Please share your ideas in the comment section below or directly on LinkedIn.

deputy head of strategy, SunGard’s capital markets business

TWITTER EXCHANGETALK WITH CME GROUP

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

Yesterday I participated in one of the CME Group’s ExchangeTalk interviews on Twitter.  I am betting that you follow @CMEGroup on Twitter already, since they have more than 750,000 followers; however, if you aren’t familiar with their ExchangeTalks, you can see a recap of mine below and find a list of the people they have interviewed thus far here.  They do a great job of organizing Twitter conversations around industry professionals and themes.  Keep your eyes out for future $ExchTalk interviews and come with your own questions for the interviewees.

If you have any additional questions for me or want to connect via Twitter, you can find me @tonyscianna.

ExchangeTalk, February 16, 2010

CMEGroup Join us today on Twitter for the next edition of ExchangeTalk at 10:30 a.m. CT with @tonyscianna of Sungard. $ExchTalk

tonyscianna Looking forward to it RT @CMEGroup Join us today for the next edition of ExchangeTalk at 10:30am CT with @tonyscianna of SunGard $ExchTalk

CMEGroup @tonyscianna Thanks for joining us for ExchangeTalk – In 140 characters or less can you describe Sungard? $ExchTalk

tonyscianna @CMEGroup Glad to be here. $ExchTalk

tonyscianna @CMEGroup SunGard is a leading IT services & software company w/ 20k+ employees across 4 businesses, including Financial Systems $ExchTalk

CMEGroup @tonyscianna What is your role at Sungard? $ExchTalk

tonyscianna @CMEGroup I oversee all product mgmt & marketing for SunGard’s Brokerage & Clearance biz (@SGBrokerage) w/in Financial Systems $ExchTalk

CMEGroup @tonyscianna So you keep a close eye on trends (maybe 2) What are some of the industry issues you and @SGBrokerage are monitoring? $ExchTalk

tonyscianna @CMEGroup In only 140 characters? Increased regulatory scrutiny, monitoring real-time risk & exposure, OTC – cleared… $ExchTalk

CMEGroup @tonyscianna We know…tough to do…any one of those a real focus for you and your team? $ExchTalk

tonyscianna @CMEGroup All 3 are. We are especially focused on OTC – cleared and real-time risk areas. $ExchTalk

CMEGroup @tonyscianna You’ll be in #Chicago 2/25 talking about #Cliq. We’ve heard about it but what is it? $ExchTalk

tonyscianna Cliq is an industry utility that will streamline the global post-trade, listed & cleared derivatives process for buy & sell side $ExchTalk

CMEGroup @tonyscianna What makes #Cliq unique? $ExchTalk

tonyscianna Cliq provides web-based single point of entry to all parties of a transaction, & creates #transparency and efficiency $ExchTalk

CMEGroup @tonyscianna Is there a web link to #Cliq for more information? $ExchTalk

tonyscianna @CMEGroup If folks are in town, I encourage them to register for our #derivatives bfast in #Chicago http://bit.ly/tCliqChi $ExchTalk cont’d

tonyscianna For now you can also learn more about #Cliq on the SunGard site here: http://bit.ly/adXe0R $ExchTalk

CMEGroup @tonyscianna Let’s wrap up with a social media question — how has #Twitter changed your job? $ExchTalk

tonyscianna @CMEGroup The way I find & read news is changing. I follow trends, issues & news from little snippets shared in real-time $ExchTalk #Twitter

CMEGroup @tonyscianna And of course a little networking doesn’t hurt; see you in Chicago; Thanks so much for your time #Twitter $ExchTalk

tonyscianna @CMEGroup It sure doesn’t. Looking forward to seeing you there! Thank you as well. #Twitter $ExchTalk

CMEGroup If you want to follow everyone we’ve interviewed for ExchangeTalk $ExchTalk our Twitter list is here: http://ow.ly/17Uom

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TURNING ON A DIME

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Author: Gerry Murphy, former president, SunGard brokerage & clearance business

Our business continues to change rapidly, just as it has for my 20+ years in this industry.  I think my fellow brokerage & clearance blog authors and the readers here would all agree.  However, the past two years have given us change in a different way.  We’re talking about overnight, precedent-setting change.

Change like this means many things – new risks, regulations, requirements – and a lot of new questions regarding what to do next. But today, I’d like to share one specific idea:  with precedent-setting change, the industry needs precedent-setting technology solutions that can help companies operate more efficiently.

This is not the time to stick to the status quo.  The industry has been completely shaken up, and I believe we are going to continue feeling the ripple effects for a long time to come.  Financial technology leaders should recognize that we all need to adapt and manage in a new environment where sweeping change must be the expectation.  It’s more important than ever for software providers and IT vendors to be able to turn on a dime and invent or reinvent technologies that solve critical industry problems, existing or new.

I believe the organizations that will come out on top when the shake-up shakes out are the organizations that recognize this and can react nimbly. No one can afford to wait anymore. I say 2010 is about anticipating continual change and staying at least one step ahead.

How are you responding to the reverberations of the changes affecting our industry? Let’s start a conversation in the comments.

deputy head of strategy, SunGard’s capital markets business

DERIVATIVES BREAKSFASTS WITH SUNGARD

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

Last month, SunGard’s brokerage and clearance business along with TowerGroup hosted a breakfast meeting in New York, where attendees heard about what’s happening next in derivatives. For those of you who tuned in to my #derivchat Twitter interview with Stephen Bruel, research director at TowerGroup, you’ll recognize some of the key themes Stephen, Gerry Murphy and I covered during the breakfast meeting:

• major pain points in derivatives processing
• communication between the buy-side and sell-side
• increasing regulation
• transparency
• mitigating risk
• …and more

It was a great event, with a lot of thoughtful questions from attendees as well as discussion around the future of the derivatives markets. If you couldn’t make it to the breakfast in New York, you can join us in London on January 14 or Chicago on February 25 for similar events. Be on the lookout for more information (you can follow my Twitter updates in real-time @tonyscianna), and in the meantime, register for breakfast with SunGard and leading industry analysts in London or Chicago.

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IS TRANSPARENCY A PRIORITY FOR YOU IN 2010?

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Author: Gerry Murphy, former president, SunGard brokerage & clearance business

“Economists have for decades recognized that transparency benefits the marketplace. After the last great financial crisis facing the nation, President Roosevelt called for transparency in the futures and securities marketplaces. It is now time to promote similar transparency in the OTC derivatives marketplace.” – Gary Gensler, CFTC Chairman

This is an excerpt from CFTC Chairman Gary Gensler’s December 2, 2009 testimony before the House Committee on energy and commerce (Subcommittee on energy and the environment), and I can see one word in particular that really jumps out: transparency. I’ve been thinking about transparency quite a bit as we kick off the new year, and I think Gensler’s quote is a definitive call to action as well as a conversation-starter.

Without a doubt, this will be a major theme throughout 2010 – you will undoubtedly see it popping up frequently in SunGard’s ongoing discussion of trends with the #ten10 hashtag on Twitter. In the derivatives markets in particular, promoting and increasing transparency will be an important task to tackle. This is a task that touches regulation, risk and reporting, and I believe we will continue to see and should see a strong push for increased transparency across the board this year.

One thing I’ll add is that when it comes to reporting and risk in particular, increased focus on transparency will also mean increased focus on a real-time view of your data and achieving more efficient methods of communication. This theme is driving a lot of what my team is working on, and you will see more blog posts around these topics as the year goes on.

In conversations I’ve had with colleagues and industry experts, I can see how deeply transparency will resonate this year and I am eager to see how this will all unfold. What types of conversations have you been having around this topic?

What do you think 2010 holds for the idea of transparency in the derivatives markets?

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TOO BIG TO MANAGE RISK

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Author: Gerry Murphy, former president, SunGard’s brokerage & clearance business

If you talk to anyone about the financial crisis for more than a few minutes, one expression is likely to crop up: “too big to fail.” There’s even an entry for it in Wikipedia, where it’s defined as “a phrase referring to the idea that in economic regulation, the largest and most interconnected businesses are so large that a government cannot allow them to fail because said failure would have a disastrous effect on the economy.”

Whether or not you agree with this philosophy, or you believe that such businesses should be left to manage on their own in the market, it’s an important debate to have. Indeed, it’s a discussion that regulators, politicians, industry experts and others are holding right now both in the U.S. and around the world.

These discussions often look at only one what-if scenario: what if these firms were about to go out of business? Would they take other organizations down with them? Would the effects significantly disrupt the markets throughout the country and around the world?

We also need to look at the situation before the business gets to that point. That leads to another important question that my colleague Tony Scianna and I have been thinking about: Can an organization become “too big to manage the risk”?

As I and many others have said before, one of the biggest lessons of the crisis has been around the importance of effective risk management. The complexity of these huge organizations does not only come into play if and when they teeter on the edge of survival. There’s a day-to-day need to monitor and control risk across the organization. The bigger the organization, the more challenging it can be, especially when firms are built from acquisitions and businesses remain siloed. Information may not be shared across business lines – and in some cases, not even within them. Legacy systems may not communicate with each other or provide the real-time information that you need. So how can you measure and understand your risk?

How would you answer that question? What lessons have you learned from the crisis?

deputy head of strategy, SunGard’s capital markets business

DERIVATIVES INTERVIEW WITH TOWERGROUP

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

Today via Twitter, I conducted a live interview with TowerGroup Research Director Stephen Bruel about key issues in the derivatives space. In case you missed the “twitterview,” I’ve posted the Q&A for you here.  You can also find the whole conversation on Twitter by searching the #derivchat hashtag.

Have another question or a comment to add? Weigh in with your perspective.

tonyscianna: Thanks for joining us for #derivchat, and thank you to @StephenB_TG for participating in this live “twitterview” today #WHN

StephenB_TG: Glad to participate. Shall we get started?

tonyscianna: Sure. What are the major pain points within listed or centrally cleared derivatives processing?

StephenB_TG: Trading tools improving, but mid&back office needs help in comms, allocations, margin mgmt, settlements &more

tonyscianna: How could communications improve re: listed or centrally cleared derivative settlement between buy & sell side?

StephenB_TG: Streamline, move away from phone/fax. Too many relationships (buyside,fcm,broker,etc) to manage info manually

tonyscianna: Do you think an industry utility would help with buy & sell side communications? How, why?

StephenB_TG: Firms need easier way to view trades by status & counterparty & to recon breaks to help manage intraday risk

tonyscianna: Equities space has comms utility b/w buy & sell side. Why not in listed or centrally cleared derivatives space?

StephenB_TG: Unique ETD charac (margin,etc) lead to mkt structure diff from cash eq. As vols increase demand could increase

tonyscianna: One more Q: What’s your view re: central clearinghouses & exch settlement for CDS & other #OTC asset classes?

StephenB_TG: Not the panacea the regulators think it is. Help some issues (transparency) but create new(risk concentration)

tonyscianna: Thank you for your time. How can people connect with you to learn more about these topics?

StephenB_TG: Hope they’ll join us at the #SunGard breakfast in NYC on 12/17. Register here: http://bit.ly/CliqToRegister