Performance measurement and exception management in investment processing


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This paper analyzes a system that monitors the complete back office operation s involved with trade processing ; evaluates robustness of processes and the efficiency of employed resources to manage the complete transaction lifecycle and yield optimum results at competitive cost. Despite significant IT investments, there is lot of room to improve at every stage of trade processing — from order initiation to settlement.

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Performance measurement and exception management in investment processing

  1. 1. NIIT Technologies White Paper Performance Measurement and Exception Management in Investment Processing Performance Measurement and Exception Management in Investment Processing Vinit Sharma
  2. 2. Introduction Straight-through Processing and its Challenges Performance Management Components of a System Performance Reporting System How does NIIT Technologies’ solution work? Conclusion NIIT Technologies Experience References About the Author About NIIT Technologies 3 3 4 4 5 6 6 7 7 8 8 CONTENTS
  3. 3. INVESTMENT REVENUEREVENUE INVESTMENT INVESTMENT INVESTMENT FINANCE FINANCE FINANCE FINAANCE FINANCE WEALTH MARKET MARKET MATKET CAPITAL CAPITALCAPITAL CARGO CAPITAL ECONOMICS ECONOMICS BANKING The financial securities market incurs about 80% of its total cost associated with trade processing in exception management. The competitive pressure has led majority of the back office service providers to turn to Straight-through Processing (STP) to increase speed and efficiency with which trades are processed and settled and to reduce risks and costs associated with trade processing. STP is a much-beleaguered term in the securities industry as it has been used for a wide range of technologies , products, and business objectives. The objective is well understood — increase efficiency of trade processing to enhance customer service, cut costs, and increase profits. Despite significant IT investments, there is lot of room to improve at every stage of trade processing — from order initiation to settlement. The back office service providers need to constantly monitor operations, identify bottleneck s and take corrective measures. To successfully attribute any exception during back office trade processing, it is imperative to benchmark tasks and measure performance of each of the tasks against it. Any deviation necessitate s further investigatio n and provides scope for improvement. The conclusion is that any system that provides meaningful performance benchmark, appropriate tools, minimum service requirements, and information to monitor and manage business result will definitely add value to the end client. This paper analyzes a system that monitors the complete back office operations involved with trade processing; evaluates robustness of processes and the efficiency of employed resources to manage the complete transaction lifecycle and yield optimum results at competitive cost. Introduction The concept of Straight-through Processing (STP) is not new. STP is seamless, electronic end-to-end processing that encompasses the entire life of a transaction or a business support process — from execution through settlement and reconciliation, across the entire financial markets value chain. Ideally, with STP, once a trade is entered in the system, it never needs to be touched or manually administered again, unless subject to legal and regulatory restrictions. With the number of participants involved in completing a trade transaction, it is important that all of them achieve high level of STP. However, it is extremely difficult to achieve enhanced efficiency in today’s electronic and automated marketplace due to several factors: • In order derive competitive advantage, investment firms continuously introduce new financial products with varying degrees of complex processing needs • Trade volumes are continuously rising due to greater participation of retail and institutional investors • Smaller lot sizes • Decreasing margins per trade transaction are making any error in the process extremely expensive Operationally, there are far too many touch points, from order initiation through execution and settlement , increasing the possibility of errors and the cost of manual intervention. With the proliferation of new products and multiple reference data providers, it is an added challenge to ensure data consistency between order initiation and settlement. The challenge is a much bigger one for global markets service provider. There are multiple regulatory and compliance requirements which require investment processing firms to spend on resources. This in turn shifts the focus from improving operational challenges with trade processing. Straight-through Processing and its Challenges 3
  4. 4. The business benefits of such a system are immense. Building such a system provides enhanced client experience, by measured timely and accurate service performance data, to meet client’s specific requirements. Quality and performanc e management serve as “centers of excellence” to an organizatio n by providing reliable, accurate performanc e data on key business processes. Quality management enables an organization to examine its processes on an “end-to-end ” basis. It also enables more effective, fact-based conversations with the market units, solution groups and external clients. This in turn results in improved Service Level Agreements (SLA’s) and enhnced client satisfaction. In the investment processing industry, getting an insight into the performance of the services being offered to clients is the key reason for the value proposition to be outsourced. The goal is to broaden the areas of focus, so as to include measurable elements like accuracy, productivity, volume, and timing. The service provider should provide the mechanics to analyze every error/ exception; enrich the exception with reasons; and enable the conversion of data into information on a consistent basis for management reporting, internal quality assurance, analytics, and forecasting. The service provider often has multiple functional areas performing various back office tasks for its clients. Many of these functional areas are transaction driven supporting and managing millions of transactions per month. The transaction data is usually pulled from multiple systems or manually captured. In such cases, data errors and exceptions are a common occurrence. Therefore, data needs to be sanitized and organized in a form that can be easily analyzed and presented to the management so as to provide complete transparency into the efficacy of processes. Performance ManagementPerformance Management Components of a SystemComponents of a System 4 Exception Exception Exception Exception Exception Exception Disrupt Customer Service Compliance/ Risk management BUY SI DE SELLSIDE CLEARANCE / SETTLEMENT BUY SID E SELLSIDE CLEARANCE / SETTLEMENT Basel ll SEC Rules 17a-3, 17a-4 NASD 3110J-SOXMiFID PIPEDA Serbanes-OxleyRegNMS Fig 1: Challenges with end-to-end Straight-through Processing The performance management system requires establishment of standardized processes for measuring service performance by capturing, enriching, and converting exception data into productive information. The core logic of such a system would be based on three levels of data: • Functional Process Metrics: These metrics capture all incidents and exceptions that are inherent in each process that makes up the measures (accuracy, productivity, cost, volume and timing) • Enrichment Coding: It reduces the manual effort of adding research clarification to an exception, such as an incident type, as well as the reason areas for root cause analysis and controllability • Parsing of data: To enable conversion of data into information for more analytics The system should serve as a scorecard and benchmark the exception data in an automated fashion, saving several thousand man hours wasted in manual data preparation. This leads to higher service quality which in turn improves customer loyalty.
  5. 5. The common components of such a system should include the following: • A user interface for maintenance of master data for entities related to exception • A user interface for exception enrichment • An “approval process” workflow for enriched and wrongly assigned exceptions • A user interface for user administration module that defines user roles, team mappings and their function points. The system should support role based security at data level, report level and screen level. 5 Extract, Transform Load (ETL) Extraction of data from source system, transforming flat files to Normalized Database Structure and finally loading the data into the end target Workflow Logic and intelligence in the application to show only the relevant data to the user for enrichment or approval Enrichment Framework and functionality that allows users to enrich data Allows for troubleshooting and quicker response to production issues User Administration Master Data Error handling and E-mail alerts Provide secure access to the application and defines who we can see and what we can do Authentication and Authorization Framework This engine is typically a tool like Business Objects, Cognos and Hyperion These are customized interfaces that provides rich user experience implemented on top of tools like Business Objects Reports that are generated out of the system in a pre-determined format with a limited selection criteria Business Analytics and Performance Reporting Engine Ad hoc reports and Dashboards Canned Reports 1 2 3 4 5 6 7 8 9 10 Framework and functionality that allows adding of organizations, teams, and users and maintaining their details on an ongoing basis Setup and maintenance of configuration data required for normal functionality of the system S.No Component Name The ultimate goal of performance reporting system is to make sure that it automatically extracts pertinent exception data from appropriate systems; enriches this data with reasons; enables the conversion of data into information on a consistent basis for management reporting, internal quality assurance, analytics and forecasting. Typically performance management and exception reporting can primarily be done at four different levels: 1. Productivity 2. Accuracy 3. Incidents 4. Volume Performance Reporting System Description
  6. 6. Productivity reporting can be done at multiple levels depending on the client’s preference. Basic reporting involves total active accounts per operation for a particular time interval. Potentially useful information can be obtained by reporting productivity at team level or at transactio n level. Reporting should be customizable on daily, monthly or quarterly basis. ProductivityProductivity Accuracy metrics indicate count of total controllable exceptions occurring per transaction. Reporting can be done at multiple levels – individual, team or business unit and for multiple periods – daily, monthly or quarterly. AccuracyAccuracy Incident reporting aims at identifying the count of total reversals and the reasons associated with it. Reporting can be consolidated for all clients or done separately for each client. It can be done at multiple levels – individual, team or business unit and for multiple periods – daily, monthly or quarterly. IncidentsIncidents Volume reporting displays total count of transactions at daily/ weekly/ monthly or quarterly period for past one year. This reporting can again be done separately for Business units, teams, clients etc. VolumeVolume As exception/ error volumes rise in trade processing, it is not viable to rely solely upon manual intervention as the first line of defense. In the current market environment, where there is a premium on cost reduction and lowering risk, it is imperative, for firms to actively consider the implementation of appropriate performance management systems. ConclusionConclusion How does NIIT Technologies’ solution work? How does NIIT Technologies’ solution work? 6 NIIT Technologies has built an integrated solution that provides enhanced client experience by measurement of timely and accurate service performance data to meet every client’s specific requirements. NIIT Technologie s has a built a four step Performanc e Management and Reporting System (PMRS). NIIT Technologies solution, all incidents can be easily captured, controlled and reported through a seamless workflow. Most organization s have high volumes of incidents and exceptions in the system during trade processing. With the high volume of incidents, organizations fail to identify the root causes and establish preventative actions manually. Using the 1. Capture all Incidents and Volumes1. Capture all Incidents and Volumes The incidents, captured in the first step, are classified into various exceptions. Every error (exception) is analyzed and enriched with reasons. Once the errors are analyzed and enriched, the data is converted into information which be used for management reporting, quality assurance, analytics, and forecasting. 2. Classify Exceptions, Incidents2. Classify Exceptions, Incidents Our solution confidently reports on the quality, accuracy, timeliness , cost, and FTE efficiency measures of current exceptions data. 3. Report Generation and Analysis3. Report Generation and Analysis 4. Publisher/ Dashboard4. Publisher/ Dashboard It enables the users to view information in the form of user defined (ad-hoc), canned reports and dashboards in its end state. PMRS Capture All Incidents & Volumes Classify Exceptions, Incidents Report Generation & Analysis Classify Exceptions, Incidents Report Generation & Analysis Publisher / Dashboard
  7. 7. At NIIT Technologies, we have managed more than $1 trillion Assets Under Management, engaging with more than 1.5 million end users. NIIT Technologies considerable experience in Front Office, Middle Office and Back Office operations. As per the Datamonitor Black Book of Outsourcing 2010 survey, in the overall satisfaction ratings, NIIT Technologies is ranked number 1 in the Data Management Services. NIIT Technologies’ team has working knowledge of several industry leading products including Charles River, Calypso, Advent Moxy, Linedata Longview, MacGregor ITG, Eze Castle, Omgeo, Bloomberg, Reuters, Yodlee solutions such as “Yodlee Account Data gathering” and many other tools and products used in the industry. NIIT Technologies Experience Strong Industry FocusStrong Industry Focus NIIT offerings span business and technology consulting, application development and management services, IT infrastructure services, and business process outsourcing. Our services to customer-r- partners across the world has led to the evolution of a strong value-e- optimizing framework for offering similar services through a cost effective delivery model that can be used in single shore, dual or multi shoreformats. Technology BandwidthTechnology Bandwidth NIIT software factories are ISO 27001, CMMi Level 5 and PCM Level 5 accredited. Our resources are therefore well versed with operating in a highly mature process oriented and secure environment and bring this expertise to all client engagements. Mature Best-in-class process frameworkMature Best-in-class process framework NIIT has a large resource base of over 5000 analysts and consul- tants and hence is able to quickly source professionals with the desired skill sets required for the project. Furthermore, we also possess the capability to ensure a quick ramp-up of project resources when in need. Access to large resource baseAccess to large resource base 7 Several global organizations rely on NIIT Technologies Performance Management and Reporting Solutions (PMRS) to meet their complex and ever changing requirements at low compliance cost and to deliver strong management processes. By using these solutions, organizations report recorded exceptions in a timely and accurate manner providing governance, visibility, and transparency. Our PMRS solution is part of NIIT Technologies’ Performance Management System which drives profitable growth by delivering predictable results, improving confidence and compliance, and streamlining business processes.
  8. 8. Vinit Sharma is a Business Solution designer within the Banking and Financial Services practice at NIIT Technologies Ltd. He has over 8 years of experience. His expertise includes Capital Markets, Corporate Finance, Credit Card and US Mortgage business. About the Author D_03_120413 Write to us at NIIT Technologies is a leading IT solutions organization, servicing customers in North America, Europe, Asia and Australia. It offers services in Application Development and Maintenance, Enterprise Solutions including Managed Services and Business Process Outsourcing to organisations in the Financial Services, Travel & Transportation, Manufacturing/Distribution, and Government sectors. With employees over 7,000 professionals, NIIT Technologies follows global standards of software development processes. Over the years the Company has forged extremely rewarding relationships with global majors, a testimony to mutual commitment and its ability to retain marquee clients, drawing repeat business from them. NIIT Technologies has been able to scale its interactions with marquee clients in the BFSI sector, the Travel Transport & Logistics and Manufacturing & Distribution, into extremely meaningful, multi-year "collaborations. NIIT Technologies follows global standards of development, which include ISO 9001:2000 Certification, assessment at Level 5 for SEI-CMMi version 1.2 and ISO 27001 information security management certification. Its data centre operations are assessed at the international ISO 20000IT management standards. About NIIT Technologies NIIT Technologies Limited 2nd Floor, 47 Mark Lane London - EC3R 7QQ, U.K. Ph: +44 20 70020700 Fax: +44 20 70020701 Europe NIIT Technologies Pte. Limited 31 Kaki Bukit Road 3 #05-13 Techlink Singapore 417818 Ph: +65 68488300 Fax: +65 68488322 Singapore India NIIT Technologies Inc., 1050 Crown Pointe Parkway 5th Floor, Atlanta, GA 30338, USA Ph: +1 770 551 9494 Toll Free: +1 888 454 NIIT Fax: +1 770 551 9229 Americas NIIT Technologies Ltd. Corporate Heights (Tapasya) Plot No. 5, EFGH, Sector 126 Noida-Greater Noida Expressway Noida – 201301, U.P., India Ph: + 91 120 7119100 Fax: + 91 120 7119150 A leading IT solutions organization | 21 locations and 16 countries | 8000 professionals | Level 5 of SEI-CMMi, ver1.2 ISO 27001 certified | Level 5 of People CMM Framework