The Challenge
Initially, Channel Capital (“Channel”) began exploring solutions to solve the challenges being experienced as a result of daily cash and position reconciliation processes. The Investment Operations Team were required to perform Excel / macro-based reconciliations each day, working to tight deadlines.
This process was carried out by loading custodian cash and position balances to the investment operations platform, running a simple reconciliation module, downloading data and pasting the data into an Excel workbook. As part of saving the file down, a macro was run to pull in the prior days break data for matching and clearing. The team was required to identify the missing/ unsettled transactions or settlement differences either in the investment records or custody records that made up the cash or position differences highlighted by this process. They used a combination of various custodian portals (8 custodian portals across 4 Investment manager groups and multiple asset classes) and transaction reports to complete this. This process was repeated for futures clearers, investment book of record to fund manager systems and stock borrow book reconciliations.
Users entered free text comments onto breaks in the Excel workbook which created a lot of inconsistency due to the manual nature of the task and differing users completing the reconciliations day on day. Issue resolution was problematic, with significant time wasted verifying formulas and constantly switching between workbooks, custodian portals and reports. It was a time consuming and monotonous task for the team.
In 2022, the team became responsible for ASIC’s OTC derivative reporting oversight, whereas previously this was provided by a third party. This required the team to download data from the investment operations platform and copy and paste that data into an Excel workbook. A delivery of data from the trade repository also required copying and pasting into an Excel workbook, along with a third workbook containing v-lookups used to reconcile the OTC derivative transactions contained within the investment operations platform against the data stored at the trade repository.
This process was highly inefficient and resulted in various levels of manual input and oversight to ensure data was correct.
Channel needed a solution which could consume, normalise, and reconcile varying data types against the core investment book of records for the funds managed by the team. The solution needed to be fully hosted by the vendor and have the ability to deliver management information reports showing completeness, accuracy, exceptions and trends along with strong maker/ checker controls.
The Solution
The Fund Recs Data Solutions were used to automate the ingestion of data from the investment operations platform, the custodians, clearing counterparties and various other parties (“brokers”) as well as from the trade repository. This part of the Fund Recs platform allows for any format of data, from any source, to be easily configured for automatic ingestion and subsequent normalisation. The normalisation process results in the data being ready for onward distribution, either externally back to Channel or their third-party partners, or to the Fund Recs reconciliation modules.
Channel stood out as a client in this area, arriving at the implementation project with clean, ready-to-ingest data sets. This was a notable exception, as most clients typically rely heavily on our technology at this ingestion set-up stage.
The Fund Recs Cash and Position Reconciliation Solutions are then used to fully automate the reconciliation process.
The broker statements for positions, cash balances and transactions will be ready and waiting in the platform when the Investment Operations Team log in each morning. Broker statements are delivered overnight to an SFTP or email location where our software automatically applies a template to extract and load the relevant data for each reconciliation. No manual intervention is required to manage the broker statements.
An automated extract from the investment operations platform is run at various times accommodating various trade capture windows for the funds. This extract will run and save down to an SFTP location for the Fund Recs platform to process automatically.
Within minutes the data is available in the Fund Recs platform and the auto-match and auto-break rules are running. Users can then log into the Fund Recs interface to manage any exceptions or breaks that need to be addressed, without the need to be logged into the various custodian or broker portals.
The Fund Recs Transaction Reporting Oversight Solution is used to fully automate the reconciliation process between the investment operations platform and trade repository records. It is also used to analyse the data stored within the trade repository for accuracy against the rules specified by the regulator (ASIC).
A data ingestion, auto-match and auto-break process occurs, similar to that of Cash and Positions above. The data quality analysis process is also occurring automatically on a daily basis. Users log in daily, as this is a key oversight tool for the compliance & regulatory management of the externally appointed Investment Managers, and can manage exceptions, breaks and data quality issues with the responsible stakeholders receiving easily configurable issue reporting.
Lastly, Fund Recs MIS Reporting is used to visualise management level dashboard reporting to quickly retrieve a sense check on completeness, accuracy, exceptions as well as data trends.
The Result
To demonstrate the efficiencies gained by Channel, consider the following example. For one of their investment manager clients, reconciliations were completed by circa 11am (pushing to 1-2pm with high volumes of transactions) each day for approx. 30 individual funds. Post implementation of Fund Recs, these times have been brought back to 9am initially for the original funds but has also allowed Channel to achieve scale in completing 300+ reconciliations a day. On the ASIC OTC derivative reporting side, the downloading and processing of data, along with issue resolution, was taking 1-2 hours every day. Due to multiple users involved, this is an overall saving of around 2 working hours per day, every day. When multiplied across clients and across the year the resource saving is significant.
Channel were able to gain such significant savings due to the high levels of automation achieved by using Fund Recs. We have fully automated the data capture and conversion process to load data. Once the data is loaded in the system, the enhanced matching and break creation logic delivered via our Strategy Service feature kicks in.
Our Strategy Service provides the ability to define matching rules and break categorisation by identifying unique scenarios. By having the ability to create rules based on every data point that was available when the relevant file was ingested, rules can now be created for the edge cases. This flexibility allows the users to move beyond matching only on quantity, price and market value and adapt the rules engine to the unique data sets and achieve full automation.
As of August 2024, for cash reconciliations, 83% of transactions were either auto-matching or automatically being created as breaks. For position reconciliation this number was 99% while 79% of all position reconciliations were completed as a straight through process without any manual intervention.
To see learn more about Fund Recs and see our solution in action, click here.
