A BUSINESS CASE OVERVIEW FOR THE INVESTMENT BOOK OF RECORDS

Rich Adams, Director, Product Management, Investment Services, Fiserv

Historically, asset management firms have used end-of-day or settlement data from their trade management and portfolio accounting systems to track and report daily positions that have been documented in an Accounting Book of Records (ABOR). However, as a result of increasingly complex trading strategies, globalisation and regulatory challenges, a growing number of firms believe that ABOR is no longer enough. Increasingly, firms are implementing a newer methodology, an Investment Book of Records (IBOR), which provides a far more holistic view of assets, transactions and events, enabling portfolio managers to fully understand their start of day positions and actionable assets to trade.

Increased visibility; in real-time

Rich Adams

Rich Adams

IBOR generates a complete, real-time visualisation of firms’ book of records from an investment perspective by tracking account trades and settlements that happen throughout the day. Leveraging this arrangement provides a nonstop position-tracking environment, which is far superior than waiting until the end of each day to process reports with closing balances. The result is better asset management and improved tracking and visibility of Corporate Actions, such as cash settlements, trade settling and dividends.

Corporate Actions are given a new level of visibility with an IBOR. This is particularly important for firms because these events ultimately affect positions in both securities and in cash. In terms of securities, if a major firm in a portfolio were to split shares, or announce the launch of a new entity or joint venture, the portfolio manager would be made aware of this as soon as possible with IBOR.

Assists with risk and compliance
IBOR helps reduce risk, trading errors and other errors that might happen for positions that have not yet been fully settled, or are pledged towards another investment type. It also allows for an effective, comprehensive mapping of exposure to at-risk nations, such as Greece or Spain. In volatile or uncertain marketplaces, this creates opportunities for more expedient management decisions.

From a front-office perspective, IBOR offers real-time updates on assets and positions, which means that the most fluent and accurate data will be guiding a portfolio managers’ decision making processes. In the back-office, there is increased flexibility in applying operational models on top of investments, particularly in positions and tracking, which is also very valuable for compliance. This means that firms have an immediate view of all the potential regulatory implications for each trade and investment decision, allowing compliance professionals to operate in a more accurate, real-time environment.

Europe vs US
To date, IBOR is being implemented on a more widespread basis in Europe than the US. This is likely due to the fact that Europe, when viewed as a cohesive entity, is more exposed to global securities; different currencies, different countries and different types of securities. In comparison, US securities are generally less-exposed to other markets. From an investment perspective, an IBOR becomes particularly necessary when managing an array of securities and asset types. Since the emerging trend in the US is towards investing in more global assets, it is likely that globalisation will also drive US firms to adopt IBOR

ABOR vs. IBOR
Many professionals believe that ABOR is no longer sufficient, and that configurable position views and alerts – a major enhancement achieved with an IBOR – are now a core operational requirement. IBOR offers an improved view of data with integrated visualisations and business intelligence, whereas ABOR is a relatively strict end-of-day view on books and records, which is limited to settled cash, settled trades and valuations. IBOR utilises predicative views that build upon the basic foundation of ABOR, and then integrates competencies in account forecasting, corporate actions, exposure reporting and position management, to just name a few.

Functionally speaking, IBOR can report on multiple slices of data through highly-customized filtering criteria within a book of records; in turn, this allows for more compartmentalised reporting, tailored to a firms specific accounting and asset management needs.

Getting the right technology infrastructure is vital
Some firms may face IBOR implementation challenges if their underlying technology lacks the ability to integrate disparate internal and external systems. Such difficulties can be averted, however, by natively supporting FIX, Swift, XML and other protocols that help reduce the time to market, and implementation expenses, for an IBOR.
Beyond this, there are several critical requirements for implementing an IBOR; more than anything else, firms must have the proper technological infrastructure in place to be able to accurately track valuations, exposure, cash projections and trade settlements – things that are crucial in the investment lifecycle.

The second requirement for an IBOR is the visualisation of that data and making sure that the data can be easily consumed by an investment manager in a visual perspective. This gives them the ability to quickly drill into areas that might require more attention than just investment management. In practice this means that instead of producing a report at the end of the day which shows incoming cash tomorrow, an IBOR provides a visualisation that would allows firms to see the origins of that actual cash flow, in terms of the specific currency and country that it is exposed to.

Integrate an IBOR
By leveraging position keeping and messaging with an integrated IBOR, firms have the feature functionality to trade, value and settle all securities. From a reporting perspective, a joint solution also offers the ability to correctly value and judge exposure to certain asset classes, helping to gauge risk. Firms are now asking how they can best employ an IBOR to help them manage the challenges of today’s trading environment, leading many to believe that IBOR will soon become a dominant force in the asset management industry.

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