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January 2, 2014

The Buyside's Moment of Truth

If your trading firm doesn't have a single and reliable Investment Book of Records, your data isn't telling you the truth.


Duncan Cooper

Firms are discovering there is a strong business need for accurate real-time positional data across their organizations. Access to such data would maximize investment opportunities and ensure that a firm can be fully invested. For some, an Investment Book of Records addresses that need. Gaining considerable attention in the investment management industry, particularly within more retail-focused firms, IBORs provide real-time portfolio visibility through the synchronization of front- and back-office systems and can be implemented in a variety of ways.

Traditionally, an investment manager has a front-office system covering a portfolio management system, an order management system and possibly an execution management system, partnered with a back-office accounting system. Linking and integrating these systems is typically performed by various extraction solutions. Historically, these were custom solutions, but today the trend is toward off-the-shelf data management solutions.

Each morning, the back-office system produces the current positions for the start of day. These are then passed to the front-office PMS/OMS. Throughout the day, trades are executed within the OMS, and at the end of the day, a trade file is extracted from the OMS and sent through to the accounting system for processing.

Corporate actions, subscriptions, redemptions and general cash movements are manually adjusted and entered into front-office systems or into back-office systems by an operations team. As a result, the front office and back office would only be "in sync" at the start and end of the day. The rest of the time, they are running their own separate processes and do not have a consolidated "picture in time" of position, including cash across portfolios.



Consolidating the front office and back office into a synchronized real-time system requires considerable time, expense and effort, but doing so may deliver the business benefits that will make it worthwhile for all organizations. Investment managers who have high volumes of subscriptions and redemptions, large equity portfolios or fixed-income funds with the associated derivative instrument mix will have heavy cash-flow-sensitive instruments. They must bear the operational cost of manually updating and synchronizing along with the missed opportunity of cost being fully invested or missing a market opportunity because their portfolio managers must spend time performing administrative tasks. For these firms, the traditional approach requires too much time and effort to update and synchronize.

Firms must now function as a unified organization with a single view of the world, able to react to changes in each market with speed and agility.

To do this, investment firms and their traders need data-and not just data in various systems and databases. Instead, firms need a single source of accurate, timely and clean data that can be used throughout the organization as "the truth." Those with access to this data and the ability to use it to gain a competitive advantage will be most successful.



As with any trading challenge, there are a variety of possible solutions. Each has its strengths and weaknesses. The one to choose, however, is the solution that best fits into the existing ecosystem and solves the associated business problems better than any other option.