By Steyn Basson, Synthesis Divisional Director<\/p>\n
Synthesis has been involved in the trade reporting space for almost two decades in some form or another. Head of Markets IT\/ Treasury and Operations of the largest South African banks have approached us over these years to streamline JSE integration for Fixed Income Trade reporting. They wanted to avoid the hefty risks that come with manual integration. During this time, we have observed a number of key reasons why focussing on an automated trade reporting (as opposed to manual) approach can be invaluable to clients:<\/p>\n
1. Scalability (teams) <\/strong><\/p>\n In a number of cases we have observed, there is a small team of people taking care of every single trade that needs to be reported to the exchange. At best, most manual capture teams need to grow in a linear fashion to keep up with demand \u2013 i.e. adding double the amount of people as volumes double. And if someone has a sick day, it can all come tumbling down.<\/p>\n Utilising an automated solution allows for much easier scaling since most automated solutions would carry more than enough reserve capacity to make scaling simple. It is usually also a lot easier (especially in the days of cloud and VMs) to add additional hardware to a solution to allow it to scale than adding additional people.<\/p>\n 2. Eliminating tedious work <\/strong><\/p>\n Double capturing information is almost never seen as a rewarding and satisfying career path. Allowing people to take care of exception scenarios, and allowing an automated solution to take care of the \u201cboring\u201d repetitive part of the trade reporting process leads to much better job satisfaction.<\/p>\n 3. Error rates <\/strong><\/p>\n Humans are unfortunately error prone when it comes to routine data capturing tasks. Add tedium and\/or time pressure onto that, and the situation only becomes worse. Machines on the other hand, can repeat the same task millions of times without a single error.<\/p>\n 4. Burst capacity <\/strong><\/p>\n Using an automated solution provides for some \u201cburst\u201d capacity. i.e. allows for constant flow during a period where volumes suddenly exceed normal parameters. Depending on the design of the solution, this burst capacity can be significant, and would often result in minimal slowdown if any. A manual approach does not leave a lot of tolerance for data burst periods unfortunately.<\/p>\n 5. Penalties (time\/accuracy) <\/strong><\/p>\n Slow throughput rates, lack of burst capacity, and error-prone data capturing can lead directly to penalties being imposed on businesses. Often exchanges and other regulators place fixed time allowances on the time from which a trade is concluded to when it has to be (accurately) reported to the exchange in question. Automated solutions can help avoid penalties such as these.<\/p>\n 6. Key man dependence <\/strong><\/p>\n Too often a small proportion of individuals do the majority of the work (the Pareto Principle has been shown to apply to teams in organisations). This does mean that key-man dependence tends to emerge in teams, meaning that if specific individuals are out of commission for any reason (illness, leave, or even resignation), teams can feel a disproportionate impact. This is especially true for teams managing trade reporting, where a key-man dependency can create a major risk, and cause a significant impact on the business in cases where the key individual is indisposed.<\/p>\n 7. Unneeded extra work <\/strong><\/p>\n Very often less than optimal processes are used to support manual reporting processes. Sometimes this would take the form of e-mails, phone calls, or additional logging on tracking systems (or even faxes), and sometimes this would just be the additional churn created due to the incorrect booking of trades \u2013 fixing an incorrect trade often results in much more work than simply double booking, since reversals need to occur on previous trades (which at times need telephonic or mail approval from the counterparty) as well. Automation allows for the simplification of this process.<\/p>\n 8. Re-use of solutions\/processes <\/strong><\/p>\n Implementing an automated solution does often involve initial effort, but the advantages in the long term outweigh the initial impact. Utilising a solution that has been implemented a number of times (either internally or at other clients) also leads to significant optimisation in knowledge transfer. An issue has to be experienced once for the lessons\/fixes from it to be applied to all instances.<\/p>\n 9. Savings<\/strong><\/p>\n Automated solutions are typically cheaper in the long term than growing teams of people to support solutions, and also reduces management overheads.<\/p>\n 10. Security <\/strong><\/p>\n Manual capture processes are open to human influence, and as such can be manipulated for personal gain. In its most extreme form, manual processes can lead to instances of fraud. Automated processes cut down on this possibility significantly.<\/p>\n 11. Auditability\/Traceability <\/strong><\/p>\n When issues occur, it is often very difficult to understand what exactly happened. Although it is almost always best to avoid finger-pointing, if there is financial impact, then the issue of liability becomes relevant. Similarly, if the causes of an issue are not well understood, then understanding how to resolve the issue can at best be seen as a \u201cpatch\u201d rather than a full fix. Without logging and traceability issues are doomed to be repeated and blame games will become commonplace. The auditability that automated solutions provide allows for a clearer understanding of what happened and in which order, helping to clearly delineate responsibility as well as understand how to avoid issues in future.<\/p>\n 12. Insight into exceptions <\/strong><\/p>\n A good automated solution should provide clear visibility of exception scenarios as\/when they occur. Using manual processes means that it is often difficult to know if\/when issues have occurred. Automated solutions can highlight issues that can\u2019t be automatically resolved, allowing humans to focus on these items as opposed to the actual capture of information.<\/p>\n