Standardize the data. Automate the reconciliation. That is how fund managers have to keep costs down, as trading volumes grow and the types of assets being exchanged multiply.
Can you spell “currency overlay”? The “futures” are now.

At the beginning of the month, a Chicago firm that specializes in the automated collection, aggregation and management of financial data began expanding its services to cover futures and options on futures.

The catchy names for the new services from Insignis, located in the heart of the Windy City’s financial district, are the Futures Data Aggregation Service and the Futures Data Reconciliation Service.

Their purpose is catching on, however. By standardizing how records of futures – or other types of assets – are kept, it makes it easier for a fund management firm’s back office to keep track of positions it holds in particular types of contracts and cash it holds.

Properly managed, the reconciliation process can even be used to free up cash, by figuring out just how much collateral a firm needs to keep on margin and allowing it to put the rest to work, said Insignis CEO Peter Dietz.

For the expansion of its services into futures, Insignis now collects data on more than 90 instruments on 32 exchanges in 16 countries. Data comes from 11 top clearing brokers in the United States, the United Kingdom and western Europe. Additional brokers can be added, at a customer’s request.

But no matter how many clearing brokers are supplying data, they can’t affect the standardization of the data. The master file keeps just one record of each instrument. Clearing brokers can employ their own symbols to identify each instrument. But no broker information is added to the security master file.

Insignis, in turn, compares broker data to the master data and standardizes the reporting of the price of an instrument and value of a particular contract.

Getting this right, quickly, is no small matter in the futures industry. Where transactions in more straightforward instruments, such as stocks, are allowed to take three days to reconcile and settle, otherwise known as T+3, futures contracts must be settled in a single day (T+1).

By providing a standardized feed of futures data to fund managers, back office functions can speed up.

The reconciliation service can automatically reconcile details of transactions, without manual intervention. More commonly, says Insignis, the feed can be sent directly to a fund manager, who handles the reconciliation.

In either case, the reconciliation service can make sure that the data coming in from the clearing brokers agrees with data coming in from fund managers.

In any case, the investment manager no longer gets multiple data feeds from a variety of clearing brokers. He or she gets one single set of standardized data. “Breaks,” a.k.a. exceptions or discrepancies, are automatically identified.

The automation cuts costs on matching data on most transactions. This means operations staff can spend time just resolving the discrepancies that have been identified with custodians, clearing brokers and executing brokers. Or moving on to more important office tasks.

The Insignis services, like others, can ship out data in Excel format, commonly used in middle and back officesn or as flat files. The data also can be downloaded from a site that employs the web’s widely used FTP, or File Transfer Protocol.

The data can also be used to improve a fund’s cash and collateral positions. “By providing us with collateral excess thresholds,” Dietz said, “we are able to generate a list of accounts with collateral that could be recalled from the brokerage firms.”

And the service can also set thresholds for “free” cash balances in currencies in which no futures position is currently being held. So if, for instance, euros are sitting unused, they can be moved into another currency account and employed.

Adroit fund managers can monitor, for instance, interest rates on various currencies and move cash balances wherever they best maximize the interest received.

Insignis is “not aware of a direct competitor” for its data aggregation and reconciliation services for futures. But Traiana, a provider of post-trade processing services in futures, equities and other securities, and Electra Information Systems provide similar services.

Investment funds also often invest in creating their own data collection and reconciliation services, internally.

This is where a service supplier can make economic sense. In some cases, a two-person operations staff may have to collect information from 200 custodians, noted Ian Danic, managing director of Electra Information, which offers a securities transaction and automated reconciliation service known as Staars.

Investing in that “internal group that wants to do data on its own” can be problematic, Danic said. “If you get hit by a bus, you’re in trouble.’’

Electra is younger than Insignis, having started up in 1998, compared to 1985. But it claims to serve 30% of the top 50 investment managers, with a wide range of collection and reconcilization services for equities, fixed-income products and derivative securities.

In futures, Insignis believes it sets itself apart by standardizing data in its security master file, readily identifying errors and bringing to bear expertise on both the collection and reconciliation of data.

That’s been good enough for three clients, Dietz said, who it also says rank among the “top 50 investment managers.’’ He declined to name them, however, citing agreements with those customers precluding identification.

And, surprisingly enough, Insignis can distinguish itself by providing custom services, around the standardized data it supplies.

“What we’re finding is the back offices of these different investment managers utilize the data in different ways, and we have to be able to match their processes to most effectively utilize the data,’’ Dietz said.

 

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