A COMPLEX RECONCILIATION PROBLEM
Regulation mandates that all eligible derivatives, both OTC and ETD, are cleared through a CCP. But providing timely reconciliation across multiple products, multiple CCPs and regions with differing jurisdictional requirements is no easy task.
A lack of data standardisation results in a range of operating models across CCPs, while firms also need to take into account collateral and fee payments for clearing. Traditional on-premise point solutions struggle to deal with this complexity, and also have limitations that restrict operational agility and flexibility.
A striking example that we came across recently, was from a firm whose legacy on-premise solution could only match on six different fields - far too few considering the volume and range of their daily OTC and ETD transactions. Substantial manual work was needed to identify and investigate breaks on such limited data.
What’s needed is a new agile approach to derivatives clearing, enabling firms to build new robust controls in a matter of hours and days, rather than weeks or months.
THE OLD WAY
In the traditional model, operations teams gather requirements, analyse the data, and then create business requirements documents. These are handed over to IT teams who build reconciliations to spec in isolation of the business users.
Once ready, the reconciliations are installed on the client’s servers either by external consultants or the client’s own project team, ready for a testing phase before going into production. This is a very time consuming and costly process, with a high potential for error during the handover process.
To spin up controls quickly, firms often turn to spreadsheets and manual workarounds to build tactical solutions that evolve into a business-critical controls. This leads to:
- Increased operational risk from manual reconciliation and lack of robust and scalable processes
- Disparate teams running their own bespoke reconciliations across the business
- Lack of governance including standardisation, nomenclature and transparency
THE DUCO DIFFERENCE
Duco offers a highly agile, rapid way for derivative clearing business users to build and manage their own reconciliations. We started in derivatives reconciliation because this is the area where traditional hardcoded methods failed.
With Duco there are no prescriptive data configuration requirements: the service is source system and syntax agnostic. Clients can reconcile the full suite of both OTC and ETD cleared products across transactions, positions, fees, collateral or any other business process.
Depending on the complexity of the reconciliation it can be built by the user in as little as 10-20 minutes. There is no need for consultants or time-consuming implementation projects. Duco enables:
- Full version and audit control
- Downloadable reconciliation configurations
- Multiple stakeholders working on the output simultaneously
- Results easily consumed into other systems, via the Duco Data Platform or API
- The ability to link reconciliations together, providing multiple uses from providing accurate total equity or NAV calculations, to a high-level overview of collateral across multiple products
HOW IT WORKS
Duco’s reconciliation service is cloud-based, which eliminates the need for lengthy design and implementation projects. Clients are given access to a highly secure web-based GUI where they can build and manage their clearing reconciliations.
1. Data ingestion
Duco is data agnostic, so regardless of whether OTC or ETD products are involved, users can simply upload their data and the system will automatically ingest and transform it ready for the building phase.
2. Reconciliation build
By using Duco’s Natural Rule Language (NRL) business users are able to construct reconciliations without the need for coding. This means that clearing staff are able to work autonomously.
Here the Fixed Rate is embedded within the Description field. Using NRL you can quickly create a simple rule to pull out the internal Fixed Rate, which can then be reconciled with the CCP’s Fixed Rate field.
Once the reconciliation is built and in production, users can again employ Duco’s NRL to automatically allocate breaks to other users, groups or a combination of both. When any member of the team logs in they are then automatically presented with their exceptions to investigate and resolve within Duco.
With Duco you can decrease the time-to-market of the reconciliation build, improve control by eliminating manual processes and increase efficiency by merging several existing reconciliations into one. Over 50 clients are currently using Duco for their OTC and ETD reconciliations, ranging from tier 1 investment banks through to asset managers, brokers and smaller hedge funds.
These firms benefit from full scope documentation and auditability for the build aspect of the control, without needing to sacrifice many man-hours drafting scope specifications. Or having to carry the cost and time for an external software vendor to scope and build the reconciliations for them.
Duco is a disruptive solution in the reconciliation market enabling operations teams to leverage existing internal and external data across products, geographies and CCPs. It gives you better risk and management control over your business combined with the scalability to cope with any change. With Duco, you can trust your data.