How Technology is used forreal-time monitoring ofDodd-Frank Trade Reporting
Table of Contents• Regulation, Regulation and more Regulation• G20 Obligations• Trade Reporting Compliance2
RegulationRegulation is causing business to change how InformationTechnology (IT) is usedTransparencyAccuracyAccountabilityBut, 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…3
G20 Obligations – Who are they?Group of Twenty (G20)• Established in September 1999• Finance ministers and central bank governors of seven major industrialcountries (Canada, France, Germany, Italy, Japan, the United Kingdom and theUnited States) met in Washington, D.C. in the aftermath of the financial crisis of1997-1998• Discussed vulnerability of the international financial system in context ofeconomic globalization and showed that key developing countries wereinsufficiently involved in discussions and decisions concerning global economicissues.5
G20 Obligations – ObjectivesObjectives:1. Policy coordination between its members in order to achieve globaleconomic stability, sustainable growth;2. Promoting financial regulations that reduce risks and prevent futurefinancial calamities3. Modernizing international financial architecture.They are committed to reforming domestic and international rulesgoverning the over-the-counter (OTC) derivatives markets.6
Architecture11Fast movingReal-time responsenecessary as time forcourse correction isbrief.ComplexLots of asset classes andproducts.Regulation doesn’t specifyhow to implement it—lotsor room for interpretation(errors).You are accountablePenalties for non-compliancenot yetdefined…consequencesunclear as of yet…
G20 Obligations – Example of “Business in Motion”4 themes associated with regulationTheme Impact on Business Impact on TechnologyMarket Transparency Bi-lateral OTC tradingrelationships migrate to electronicSpreads tighten as pricesbecome more competitiveTrade volumes expected toincreaseIntroduction of Trade Reportingresulted in vast data volumesIncreased visibility required byCompliance departmentSystemic Risk Capital, clearing and marginrequirements increase costsConnectivity and aggregation ofdata from multiple locationsRegulatory Complexity Landscape complexity continuesto evolve with more jurisdictionscoming into force (globally)Strict regulatory enforcementprogramData Sourcing / Data QualityRules-based approachStraight ThroughProcessingRegulation driving moreefficiency in business modelSystems move from batch to real-time (Intraday pricing and valuation)ASATP – reporting windowsreduced over time12
Trade Compliance – Responsibilitieswhat do you have to do?The three “R”s (no, not readin’, ritin’ & ‘rithmatic…)Real time monitoring of trading activitiesEnsure that the firm complies with regulatory obligationsFollow up on reporting errors, false positivesReconcile position across all legal entitiesReporting and disseminationPrevent over/under/misreportingRespond to any requests for information from regulatorsIdentify areas for improvementIssues that impairs operations, trading or other critical functions13
Regulation is challenging…even for the regulatorsCFTC can’t cope with SDR Data (--SingleDealerPlatforms.org)• They told the industry “what” to send…but not what nomenclature touse…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 MSPsbegin reporting18
Trade Compliance – Market TransparencyMarket Transparency:• Only achieved if data can be interpreted as meaningful information• Essential that quality of data being reported is accurate• Issues must be identified immediatelyExamples:• Trades not yet ACKed or NACKed• EOD Valuations not generated19
Trade Compliance – Systemic RiskSystemic 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 – eliminateschoice• End User ExemptionExamples:• Multiple SDRs,• Break out entities : SDs, Non SD, MSP20
Trade Compliance – RegulatoryComplexityRegulatory Complexity:• Different regulators have different focus CFTC vs. EMIR• Multiple reporting windows defined for the same tradeExamples:• Multiple Jurisdictions• Time and event-based SLAs – relative or absolute & whether calendarapplies, holiday calendars…21
Trade Compliance – STPStraight Through Processing:T+1 get everything done asap andidentify bottlenecksExamples:Look for slowest trades / parts of the flow22
Are You Compliant WithDodd-Frank Trade Reporting?
What is Dodd-Frank?A series of regulations that include Improved Transparency andAccountability for Trade Execution and ReportingOur focus: Real-time Trade Reporting (Title VII)Regulators require all swaps (subject to mandatory clearing requirements) tobe reported “as soon as technologically practicable”Real-time (RT) and confirmation messages to be reported to the SDR within30 minutes of execution. Primary Economic Terms (PET) must also bereported by EODRejected trade messages will need to be resubmitted within the original 30minute deadline when the trade was first reportedKey challengesHow do swap dealers ensure compliance?And accomplish this with real-time visibility and the flexibility to coursecorrect when necessary as the regulation evolves25
Scenario: Capital Markets Group in a Major Bank27IT EnvironmentHeterogeneous: Distributed,mainframe, integrationtechnologies such as MQand TIBCO, developmentlanguages such as Java,multiple trading packagessuch as Wallstreet, Murex,Calypso…In real-time monitor thelifecycle of a trade.Provide a single tool formonitoring all middlewaretools & consume events fromany existing monitoring tools.Business RequirementsEnsure compliance to DoddFrank Trade Reportingregulation.Covers interest rates, creditequities, commodities andFX derivative products.Provide end-to-end visibilityto reporting activities.Provide visibility in real-timeto actual or potentialbreaches in responsibility
The Users Monitoring Dodd-Frank TradeReportingReal-time monitoring of trade reporting issues. When a NACK isreceived, act to correct the issue:28Business Roles FunctionTrader Execution time correct?…based oneconomic term agreement…Trade Support Transactions that took greater thana specified time to achieve amilestoneIs there a unique swap indicator(USI) CounterParty issue?Technology Are all trades acknowledged byDTCC?Compliance Was there “Double Reporting”?Many more…
AutoPilot® Monitors IT InfrastructureTypical AutoPilot deployment: monitoring infrastructure30CFTC’s O’Malia calls for savvier Technological surveillance – 2.25.13
31AutoPilot® Auto-discovers Message FlowThis is the EnterpriseNervous SystemThese messagesmay be in differentformats.Essential to trackthese in real time inorder to ensurecompliance.
32AutoPilot® Uses Payload to help StitchTracking messagesFrom the outsideby matching theirmessagesignatures.Inside by readingthe payload.
33Reportable Trading Events Correlated in Real-timeAutomaticallycorrelated in real-timeProviding you withenough time to dosomething about theissue.
AutoPilot Monitors Trade Reporting in Real-timeExecution Time TrackingDefined as when the primaryeconomic terms are exchanged• Retrieves message content and extracts the actual Execution Time as thetrigger for the SLA timer rather than the time stamp for when it was generatedelectronicallyNACK Management • Automatically detects all trades that do not contain a valid ACK milestone event.Part 43 Real-time reportingrequires the management oftimestamps by swap dealersand major swap participants• Native support for Middleware and a heterogeneous deployment including bothdistributed and mainframe which seamlessly integrates into the trade flow andcontributes timestamps to the transaction stitching process.Monitor Mandatory Data • The user can view the transaction at any point in the flow and define conditionalrules to check against the data in real-time for immediate notification.Reporting Window • An advanced SLA capability that can track each reportable event against theappropriate time-based (30 minutes after execution) or event-based (by 04:00T+1 after confirmation date) window. The SLA also incorporates holidaycalendars and UTC timestamps. Advanced Calendars.Reconciliation • Reporting capability that enable DTCC submissions and position reports to beautomatically reconciled against the application monitoring data that has beengathered at the end of the business day. Reconciliation reports can identifydiscrepancies between what the firm has reported and what information hasbeen received by the GTR.Requirements AutoPilot FeaturesMonitor compliance to regulatoryreporting requirements• Real-time trade surveillance of the progress a trade is making until completion• Automated transaction stitching across the entire lifecycle of a reportable tradeevent, represented graphically as a series of milestones.• User can be alerted to a potential or actual breach in responsibilities in real-time.
Dashboard: Trade Summary ChartView Trade StatusFailedDrill into chart for details35In Progress Completed Missed SLA Failed
Dashboard: Review Trade Details361. Review trades in progress over a time interval
Dashboard: Select Trade372. Select a trade to get more detail on
Last 1 HourLast 1 Hour 08/12/2012 12:0708/12/2012 12:07Last 1 Hour 08/12/2012 12:07Search: Trade Visibility for the BusinessSearch 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 tocomplete40
Search for Trades with a Specific USISearch for a trade with a specific USI41Last 1 HourLast 1 Hour 08/12/2012 12:0708/12/2012 12:07Last 1 Hour 08/12/2012 12:07
Search for a Trade with MultipleConditionsFind trades with a blank USI where ACME is not the ReportingCounterParty42Last 1 HourLast 1 Hour 02/12/2013 11:0702/12/2013 11:07Last 1 Hour 02/12/2013 11:07
Find Trades without NACKSAll trades that received a NACK in the last 24 hours43Last 1 HourLast 1 Hour 02/12/2013 11:0702/12/2013 11:07Last 1 Hour 02/12/2013 11:07
Find Trades without ACKsAll trades in progress that have not received an ACK44Last 1 HourLast 1 Hour 02/12/2013 11:0702/12/2013 11:07Last 1 Hour 02/12/2013 11:07
ConclusionAutoPilot® helps ensure complianceIt can provide the answer to the question, “Are you compliant?”Detects the reasons that explain why you are not compliantDetects 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…)46
Nastel AutoPilot® Provides Visibility47Feature BenefitWeb-based Dashboard Available anywhere including mobile devices enables immediate visibility andresponse with support for LDAP authenticationSimple, ProactiveAnalyticsReal-time analytics using CEP enables users to instantly see transactions ofconcern such as those with NACKs from DTCC, Euroclear or Clearstream inorder to rapidly correct and resubmit themCorrelation 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: over50 unique transaction details including: execution time, source system, USI,Asset Class , Trade ID, status, asset class, Counterparty USI, Correlation IDand moreCharting User defined charts for visualization of user queriesSLA reporting Supports both time based as well as deadline based SLAsCalendars Automatic accommodation of holidays helps keep system maintenance low.This lets analysis adjust to local policies an important capability in a functionthat is distributed globally. (Utilizes Google Calendars)History A repository searchable by USI, message contents, transaction ID or any othercaptured fieldAuditing All actions carried out are logged, associated to a user helping ensureaccountabilityReporting Pre-built EOD reports and Policy statistics enable effective program evaluation
Why Customers Chose NastelBest-of-Breed Middleware management solutionWe are the experts—18 years of best practices built-inSingle architecture across all middleware, distributed andmainframe: MQ family, DataPower, TIBCO & SolaceMonitor Web Services in real-timeAnalyticsTransaction 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-schoolanalytics just can’t get it doneTrack record with Financial ServicesCiti, DTCC, TD, Barclays, Credit Suisse and more…48