The trade life cycle, which forms the backbone of all hedge fund operations, can be broadly categorized into start-of-day positions, trade capture, trade allocation and trade reporting. Each of these areas, however, comes with its own set of challenges. Inability to track processes across multiple datasets and lack of configurability are few of the issues an automated data status monitoring using an IVP Enterprise Data Management Solution can help solve, as described below.
A hedge fund’s trades are first booked in an order management system and are then sent to a separate system for execution. However, before they are, firms must perform a number of checks using their start-of-day positions to ensure that their added positions do not result in a compliance violation. This, of course, is not an easy task due to many nuances that exist when integrating positions with multiple systems.
For instance, if a trader buys USD for EUR – or the reverse – it would net out to be one position as long as they have the same settlement date, which could be represented as two line items in the portfolio accounting system and one in the order management system. Moreover, there could be a number of complex rules that would need to be applied on the accounting data before it is fit for consumption by the order management system.
The biggest challenge in this area is being able to capture all intraday trades (fills) as they come since failure to do so would be catastrophic. Thus, a robust data status monitoring tool is needed to immediately notify the users when the load of any fill fails.
Trade allocations can come in a variety of forms. Some are simple pro rata NAV based while others are extremely complicated. On top of this, certain allocations may require manual intervention. Thus, while flowing datas, users must have the capability to either automate the entire allocation or allocate parts of it while retaining manual control.
Once all trades are allocated, they must be reported to fund admins and executing brokers. Each fund admin and executing broker has a different file specification requirement, which can vary based on the asset class being traded. If there is a problem with any of the reported trades, a method to quickly correct them and reload the trades report must be available.
By implementing enterprise data management, firms can automate their entire trade life cycle while taking advantage of the below capabilities and features:
- Built-in data dictionaries for the integration of multiple portfolio accounting systems with multiple order management systems.
- Data status monitoring tools on the application’s user interface as well as instant alert capabilities via emails, chats, etc.
- Built-in data dictionaries at an asset class level for different fund admins and brokers for trade reporting.
- Ability to write complex rules for allocations and stop the data flow for allocations that require manual oversight.
- Ability to watch for files and pick them up as they arrive to ensure a fill is never missed.
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