impact 2013: how technology is used for real-time monitoring of dodd-frank trade reporting

How Technology is used for real-time monitoring of

Dodd-Frank Trade Reporting

Table of Contents

• Regulation, Regulation and more Regulation

• G20 Obligations

• Trade Reporting Compliance

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Regulation

Regulation is causing business to change how Information Technology (IT) is used

TransparencyAccuracyAccountabilityBut, like “faster, better, cheaper” can you have all three?

• Worldwide• Dodd-Frank in the US• EMIR in EMEA

• Timelines are aggressive

• Not going so well…• The search for clarity• Very complex especially as activities span regulatory bodies• Lots of folks with hair on fire, but not sure what to do to even start…

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G20 Obligations

G20 Obligations – Who are they?

Group of Twenty (G20)

• Established in September 1999

• Finance ministers and central bank governors of seven major industrial countries (Canada, France, Germany, Italy, Japan, the United Kingdom and the United States) met in Washington, D.C. in the aftermath of the financial crisis of 1997-1998

• Discussed vulnerability of the international financial system in context of economic globalization and showed that key developing countries were insufficiently involved in discussions and decisions concerning global economic issues.

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G20 Obligations – Objectives

Objectives:

1. Policy coordination between its members in order to achieve global economic stability, sustainable growth;

2. Promoting financial regulations that reduce risks and prevent future financial calamities

3. Modernizing international financial architecture.

They are committed to reforming domestic and international rules governing the over-the-counter (OTC) derivatives markets.

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G20 Obligations - Regulators

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Multiple Regulatory Bodies:USA – CFTC, SECJapan JFSA Singapore – MASHong Kong – HKMAEU – EMIRAustralia – APRACanada – CSA Canadian Securities Administrators

Architecture

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Fast movingReal-time response necessary as time for course correction is brief.

ComplexLots of asset classes and products.Regulation doesn’t specify how to implement it—lots or room for interpretation (errors).

You are accountablePenalties for non-compliance not yet defined…consequences unclear as of yet…

G20 Obligations – Example of “Business in Motion” 4 themes associated with regulationTheme Impact on Business Impact on Technology

Market Transparency Bi-lateral OTC trading relationships migrate to electronic

Spreads tighten as prices become more competitive

Trade volumes expected to increase

Introduction of Trade Reporting resulted in vast data volumes

Increased visibility required by Compliance department

Systemic Risk Capital, clearing and margin requirements increase costs

Connectivity and aggregation of data from multiple locations

Regulatory Complexity Landscape complexity continues to evolve with more jurisdictions coming into force (globally)

Strict regulatory enforcement program

Data Sourcing / Data Quality

Rules-based approach

Straight Through Processing

Regulation driving more efficiency in business model

Systems move from batch to real-time (Intraday pricing and valuation)

ASATP – reporting windows reduced over time

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Trade Compliance – Responsibilities what do you have to do?

The three “R”s (no, not readin’, ritin’ & ‘rithmatic…)

Real time monitoring of trading activities Ensure that the firm complies with regulatory obligationsFollow up on reporting errors, false positives

Reconcile position across all legal entities Reporting and dissemination Prevent over/under/misreporting

Respond to any requests for information from regulators Identify areas for improvement

Issues that impairs operations, trading or other critical functions

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Trade Compliance

Architecture

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AutoPilot® Monitors Trade Compliance

Typical AutoPilot deployment

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Regulation is challenging…even for the regulators

CFTC can’t cope with SDR Data (--SingleDealerPlatforms.org)

• They told the industry “what” to send…but not what nomenclature to use…thus they are all different and the CFTC can’t read it

• Even when the market participants send the correct data to the SDRs, the data recorded for transparency…isn’t…

• So, reporting isn’t usable...the problem get’s even worse when MSPs begin reporting14

Trade Compliance – Market Transparency

Market Transparency:• Only achieved if data can be interpreted as meaningful information • Essential that quality of data being reported is accurate • Issues must be identified immediately

Examples: • Trades not yet ACKed or NACKed• EOD Valuations not generated

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Trade Compliance – Systemic Risk

Systemic Risk:• Some Swaps now subject to clearing and margin requirements

(reducing risk but creating more complexity)• CME Rule 1001 – some clear to DTCC and some to CME – eliminates

choice• End User Exemption

Examples:• Multiple SDRs, • Break out entities : SDs, Non SD, MSP

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Trade Compliance – Regulatory Complexity

Regulatory Complexity:• Different regulators have different focus CFTC vs. EMIR• Multiple reporting windows defined for the same trade

Examples:• Multiple Jurisdictions• Time and event-based SLAs – relative or absolute & whether calendar

applies, holiday calendars…19

Trade Compliance – STP

Straight Through Processing:T+1 get everything done asap and identify bottlenecks

Examples:Look for slowest trades / parts of the flow

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Are You Compliant WithDodd-Frank Trade Reporting?

What is Dodd-Frank?

What is Dodd-Frank?

A series of regulations that include Improved Transparency and Accountability for Trade Execution and Reporting

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What is Dodd-Frank?

A series of regulations that include Improved Transparency and Accountability for Trade Execution and Reporting Our focus: Real-time Trade Reporting (Title VII)

Regulators require all swaps (subject to mandatory clearing requirements) to be reported “as soon as technologically practicable”Real-time (RT) and confirmation messages to be reported to the SDR within 30 minutes of execution. Primary Economic Terms (PET) must also be reported by EODRejected trade messages will need to be resubmitted within the original 30 minute deadline when the trade was first reported

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What is Dodd-Frank?

A series of regulations that include Improved Transparency and Accountability for Trade Execution and Reporting Our focus: Real-time Trade Reporting (Title VII)

Regulators require all swaps (subject to mandatory clearing requirements) to be reported “as soon as technologically practicable”Real-time (RT) and confirmation messages to be reported to the SDR within 30 minutes of execution. Primary Economic Terms (PET) must also be reported by EODRejected trade messages will need to be resubmitted within the original 30 minute deadline when the trade was first reported

Key challengesHow do swap dealers ensure compliance?And accomplish this with real-time visibility and the flexibility to course correct when necessary as the regulation evolves

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Scenario

Scenario: Capital Markets Group in a Major Bank

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Business RequirementsEnsure compliance to Dodd Frank Trade Reporting regulation.Covers interest rates, credit equities, commodities and FX derivative products.Provide end-to-end visibility to reporting activities.Provide visibility in real-time to actual or potential breaches in responsibility

Scenario: Capital Markets Group in a Major Bank

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IT EnvironmentHeterogeneous: Distributed, mainframe, integration technologies such as MQ and TIBCO, development languages such as Java, multiple trading packages such as Wallstreet, Murex, Calypso… In real-time monitor the lifecycle of a trade.Provide a single tool for monitoring all middleware tools & consume events from any existing monitoring tools.

Business RequirementsEnsure compliance to Dodd Frank Trade Reporting regulation.Covers interest rates, credit equities, commodities and FX derivative products.Provide end-to-end visibility to reporting activities.Provide visibility in real-time to actual or potential breaches in responsibility

The Users Monitoring Dodd-Frank Trade Reporting

Real-time monitoring of trade reporting issues. When a NACK is received, act to correct the issue:

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Business Roles Function

Trader Execution time correct?…based on economic term agreement…

Trade Support Transactions that took greater than a specified time to achieve a milestoneIs there a unique swap indicator (USI) CounterParty issue?

Technology Are all trades acknowledged by DTCC?

Compliance Was there “Double Reporting”?Many more…

AutoPilot® Competitive Advantage

AutoPilot® Monitors IT Infrastructure

Typical AutoPilot deployment: monitoring infrastructure

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CFTC’s O’Malia calls for savvier Technological surveillance – 2.25.13

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AutoPilot® Auto-discovers Message Flow

This is the Enterprise Nervous System

These messages may be in different formats. Essential to track these in real time in order to ensure compliance.

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AutoPilot® Uses Payload to help Stitch

Tracking messages From the outside by matching their message signatures. Inside by reading the payload.

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Reportable Trading Events Correlated in Real-time

Automatically correlated in real-time

Providing you with enough time to do something about the issue.

AutoPilot Monitors Trade Reporting in Real-time

Requirements AutoPilot FeaturesMonitor compliance to regulatory reporting requirements

• Real-time trade surveillance of the progress a trade is making until completion• Automated transaction stitching across the entire lifecycle of a reportable trade

event, represented graphically as a series of milestones.• User can be alerted to a potential or actual breach in responsibilities in real-time.


Execution Time TrackingDefined as when the primary economic terms are exchanged

• Retrieves message content and extracts the actual Execution Time as the trigger for the SLA timer rather than the time stamp for when it was generated electronically







NACK Management • Automatically detects all trades that do not contain a valid ACK milestone event.








Part 43 Real-time reporting requires the management of timestamps by swap dealers and major swap participants

• Native support for Middleware and a heterogeneous deployment including both distributed and mainframe which seamlessly integrates into the trade flow and contributes timestamps to the transaction stitching process.










Monitor Mandatory Data • The user can view the transaction at any point in the flow and define conditional rules to check against the data in real-time for immediate notification.











Reporting Window • An advanced SLA capability that can track each reportable event against the appropriate time-based (30 minutes after execution) or event-based (by 04:00 T+1 after confirmation date) window. The SLA also incorporates holiday calendars and UTC timestamps. Advanced Calendars.











Reporting Window • An advanced SLA capability that can track each reportable event against the appropriate time-based (30 minutes after execution) or event-based (by 04:00 T+1 after confirmation date) window. The SLA also incorporates holiday calendars and UTC timestamps. Advanced Calendars.

Reconciliation • Reporting capability that enable DTCC submissions and position reports to be automatically reconciled against the application monitoring data that has been gathered at the end of the business day. Reconciliation reports can identify discrepancies between what the firm has reported and what information has been received by the GTR.




Dashboard: Trade Summary Chart

View Trade Status

Failed

Drill into chart for details44

In Progress Completed Missed SLA Failed

Dashboard: Review Trade Details

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1. Review trades in progress over a time interval

Dashboard: Select Trade

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2. Select a trade to get more detail on

Dashboard: View Timeline

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3. View trade timeline

Dashboard: View Milestones

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4. View milestones

Last 1 HourLast 1 Hour 08/12/2012 12:0708/12/2012 12:07Last 1 Hour 08/12/2012 12:07

Search: Trade Visibility for the Business

Search by an combination of fields in the transactionUSI, execution time, source system, USI, Asset Class, Trade ID, status, asset class, Counterparty USI, Correlation ID…

Search for all transactions that took more than 15 minutes to complete

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Search for Trades with a Specific USI

Search for a trade with a specific USI

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Search for a Trade with Multiple Conditions

Find trades with a blank USI where ACME is not the Reporting CounterParty

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Find Trades without NACKS

All trades that received a NACK in the last 24 hours

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Find Trades without ACKs

All trades in progress that have not received an ACK

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Why Nastel AutoPilot®

Conclusion

AutoPilot® helps ensure compliance

It can provide the answer to the question, “Are you compliant?”Detects the reasons that explain why you are not compliant Detects the reasons that explain why you won’t be…

Two questions you need to ask yourself1. Are you providing real-time monitoring of the end-to-end trade? 2. Can you respond to an issue in enough time to remain compliant?

(NACK, no response, missed SLA…)

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Nastel AutoPilot® Provides Visibility

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Feature Benefit

Web-based Dashboard Available anywhere including mobile devices enables immediate visibility and response with support for LDAP authentication

Simple, Proactive Analytics

Real-time analytics using CEP enables users to instantly see transactions of concern such as those with NACKs from DTCC, Euroclear or Clearstream in order to rapidly correct and resubmit them

Correlation Automating, end-to-end stitching together of the components within a trade, e.g. exe time, capture, xform, DTCC, NACK, ACK…

Visibility Provides a view into compliance that is usable by the business, tracking: over 50 unique transaction details including: execution time, source system, USI, Asset Class , Trade ID, status, asset class, Counterparty USI, Correlation ID and more

Charting User defined charts for visualization of user queries

SLA reporting Supports both time based as well as deadline based SLAs

Calendars Automatic accommodation of holidays helps keep system maintenance low. This lets analysis adjust to local policies an important capability in a function that is distributed globally. (Utilizes Google Calendars)

History A repository searchable by USI, message contents, transaction ID or any other captured field

Auditing All actions carried out are logged, associated to a user helping ensure accountability

Reporting Pre-built EOD reports and Policy statistics enable effective program evaluation

Why Customers Chose Nastel

Best-of-Breed Middleware management solutionWe are the experts—19 years of best practices built-inSingle architecture across all middleware, distributed and mainframe: MQ family, DataPower, TIBCO & SolaceMonitor Web Services in real-time

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Analytics Transaction stitching or correlationDetect problems before there is impact

• Reduces ticket backlog, support costs and raises customer satisfaction • End “eyes-on-screen monitoring”• Solve the problem of too much data complexity – old-school

analytics just can’t get it done

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Analytics Transaction stitching or correlationDetect problems before there is impact

• Reduces ticket backlog, support costs and raises customer satisfaction • End “eyes-on-screen monitoring”• Solve the problem of too much data complexity – old-school

analytics just can’t get it done

Track record with Financial ServicesCiti, DTCC, TD, Barclays, Credit Suisse and more…

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Our Customers

Over 200 companies rely on Nastel since 1994

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