The Xceptor Blog

A million reasons to retrospectively review your live trade portfolio

20 July 2018

3 minutes read time

Bank after bank is crossing its fingers and hoping to find any potential breaks across live portfolios before a trade event. Retrospective checks across the entire live trade portfolio is essential. So how do we make it achievable?

You’re late in identifying a contractual issue on a trade and it costs six figures. You’re not quite flying blind but you’ve certainly not got 20/20 vision. In the same year, it happens another half dozen times. That’s millions. Your team tries to check but there aren’t enough hours in the day. So you’ve no choice but to roll the dice on the rest.

Sound familiar? The above story is being played out across bank after bank as they cross their fingers and hope they find any potential breaks across live portfolios before a trade event. Any review of trade documentation that is being done is slow and inefficient as it’s being done manually. The high cost and time to review existing trades and associated documentation means pre-emptive checks across all trades is just not being achieved.

This means banks can only guess at their client exposure for trades with potential breaks. They just don’t have that information. That is serious operational risk and opens them up to significant financial and legal dispute implications.

Russian Roulette

The reason for the widely-adopted ‘Russian Roulette’ approach is simple. The live portfolios are vast, the data points are numerous, and the process is manual. There are simply too many things to validate.

Retrospective manual four-way trade validation across thousands and thousands of live trades is just not scalable. But retrospective checks across the entire live trade portfolio Is essential. Banks need to identify unknown future risk issues due to erroneous historic matching of paper confirmations. It’s the only way to get transparency of client exposure and to decrease risk.

Trade validation review of historic and live trades is really about lots of data points that are driving complex processes and workflows. Automated data transformation of the numerous pdfs, faxes, documents and spreadsheets that make up the bank confirmations, counterparty confirmations, booking systems and so on is the first step.

Overhauling and optimising the processes comes next so they can be easily automated to identify potential breaks across historic trades. Then use the valuable human resource to fix any breaks.

Going forwards

Going forwards, trades can be automatically validated – either as part of an inbound confirmation review process where the system confirms whether everything checks out and flags any problems straight away or immediately after the trade is booked.

Sorting out your skeletons in the cupboard is do-able and the business case is simply the opening story. That’s a million good reasons to clean house.