A guide for hedge fund administrators on how to overcome operational challenges in OTC derivatives processing.

1. CaswilTM Solution Concept Paper:
CaswilTM Solution Concept Paper:
CaswilTM Solution Concept Paper:
Challenges of of Automation in Reconciliation
Challenges Automation in Reconciliation
Challenges of Automation in Reconciliation
& Exception Management
&& Exception Management
Exception Management
A guideguide onto overcome operational challenges in derivatives
A A on how how to overcome operational challenges in derivatives
guide on how to overcome operational challenges in derivatives
processing for hedge fund administrators
processing for hedge fund administrators
processing for hedge fund administrators
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2. The Industry Problem: the “Data Inconsistency” Challenge
Many hedge fund administrators have embraced investments in STP by creating or engaging
systems that permit connection of each step in the life cycle of trade execution. However, in reality
the move towards fully automated processing pose great challenges in the hedge fund world.
Complexity of instruments with little standardization: The reconciliation of derivative products
is substantially more complex than traditional investment vehicles, with little or no standardization
from deal to deal. Global OTC derivatives include interest rate contracts, foreign exchange
contracts, credit derivatives, equity contracts, and commodity contracts, which include forwards
and swaps. Processing these complex derivatives also mean having to process data relating to
varying lock ups, notice periods and settlement schedules. Such non-vanilla transactions require a
greater number of sequential, nonstandard communications among multiple parties, thereby
increasing the opportunity for errors.
Multiple counterparties with multiple data formats: Sharing of data between counterparties is
subject to a myriad of challenges due to the lack of standardization in data formats. There is a lack
of industry standards to standardize data formats. Unique / proprietary security identifiers are the
norm, resulting in a lack of common security identifier. Inconsistent reference data is an ongoing
industry-wide problem that leads to time-consuming trade breaks and results in millions of dollars
of unnecessary annual expenditure.
Manual intervention fraught with errors: Manual processes of collecting and entering the data
cause not only backlog in processing, but also are error-prone and full of risk. Research has
shown that 90% of audited spreadsheets contain errors. Often, there is a lack of audit, which adds
to likelihood of increasing errors.
Low auto-match rates: The increase in data elements result in a decrease in auto match rates.
Managing the gaps and exceptions in this process could escalate back-office costs. Proper
automated reconciliation process becomes critical for risk-management.
Long exceptions turnaround time: Firms that do not rely on exception management solutions
often depend on dozens of executives looking at multiple screens to determine whether a
transaction was completed correctly or not. Multiple staffers work on fixing the problem, often in
different ways. It is common to assign 50 or more full- or part-time middle-office and back-office
staff to work on reconciliation problems. Often the delay in turnaround time to manage exceptions
lies in internal communications breakdown. So automation in the hands of business users will
ultimately reduce back-office headcount or allow for redeployment of personnel, which improves
the bottom line.
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3. Pain points of Hedge Fund Data Processing
TM
Pain points Caswil Solution
TM
- Limited industry standards and lack of - Caswil technology is able to work with
standardization in data formats contribute to multiple data systems and automate data
complexity of processing, resulting in standardization for processing
increased exceptions and risks. - Data feeds and communication links are more
easily managed, removing the need for
manual intervention & spreadsheets.
- There would be higher auto-match rates and
automated reconciliations.
TM
- Instrument complexity requires - Caswil empowers business analysts to
specialization by business units, who often manage and automate exceptions directly,
depend on developers to manage hence reducing IT support requirements and
exceptions, resulting in long turnaround shorten turnaround time.
time.
- With its easy to use graphic interface,
business users can automate data
conversions at their desktop, without the
knowledge of programming language.
TM
- Increases in volume of transaction require - Caswil technology is efficient and scalable,
proportional headcount increase and back- with the ability to empower high volume
office infrastructure to support operations transactions up to 700,000 transactions within
1-2 minutes; hence reducing back-office
headcount and costs.
- There is no longer a need to maintain various
software and databases.
- With a variable pricing model based on
TM
transactions, Caswil managed service
allows clients to manage their bottomline
more efficiently.
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4. The Concept behind CaswilTM STP Solution
Business users can take control of automation in reconciliation and exceptions management.
Hedge fund administrators no longer has to sacrifice efficiency while they fix errors; nor do they
have to depend on numerous technicians or back-office staff to manage the exceptions according
to business requirements. It means that business users are empowered to apply rules and logic
much sooner in the transaction lifecycle, which translates to faster turnaround times and lower
costs. With user-friendly interface, non-technical business users are able to make the rule, set the
course and track the data process.
Fund administrators have invested large amounts of money in their back-office infrastructure to
efficiently process data. However, due to the complexity of instruments traded and inconsistency
of data references and formats, there are high rates of exceptions in data processing. The time
required to accommodate a new data source or to automate these exceptions depend on the
communication time between business users and IT department, and could run as long as 6
months before the exception is resolved. This turnaround cycle time for exception management
can be reduced, or even eliminated, if automation in exception management lies in the hands of
business users.
Exception handling is often a challenging task. If not done well, it is an area wrought with risks and
could consume time and money. “Exception” means “an action/event that is not part of ordinary
operations or standards”. Exceptions happen when the “normal” flow of code is not followed, for
example if data is read from a database and a value that is not compatible with the expected value
is returned (this would typically be an application exception). Often one exception could spawn one
or more other exceptions. It is important to always assume that in data processing exceptions can
occur, and appropriate handling of the exceptions must be put in place. Because data processing
exceptions are usually technical in nature, support technicians or IT staff are called to handle
exceptions instead of business users. However, well-automated process and exception handling in
the hands of business users will increase efficiency and cut down headcount costs; it is an
investment that will prove to be valuable in the short and long run.
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5. Our Products and Solutions
Our proprietary CaswilTM STP Suite encompasses the full range of our products and solutions.
Our unique end-to-end straight-through-processing (STP) capability empowers you to convert data
in different formats from various sources into the desired format easily for hedge fund
management and administration. Our solution is offered in a seamless suite of applications, as
well as in simple separate modules to suit your organization s needs. The entire suite comprises of
modules such as CaswilTM File Management, CaswilTM Converter, CaswilTM Position Reconciliation
and CaswilTM Investor Allocation.
CaswilTM File Management: Our file management approach is to allow STP by using a single
system and database. Data processing becomes more efficient with a single database, where fund
information such as fund data source, accounts, investors, distribution contacts, groups and users
are stored. Our file management application allows you to specify files and folders to use as
source or targets, schedule automated retrieving and processing of files, decrypt and encrypt files
at ease, and monitor the process with security.
CaswilTM Converter: Our converter module uses a graphic user interface that allows business
users to map conversion process without having to learn the programming language. You will be
able to map, reference and convert multiple data source files into layouts and formats required
with ease and efficiency.
CaswilTM Position Reconciliation: Our position reconciliation module automates reconciliation of
your internal system positions with external sources (for example, brokers and asset managers).
Our solution replaces the process where users need to select files and sources manually to
compare positions with a simplified user-friendly business workflow from saving trade positions to
exporting reports.
CaswilTM Investor Allocation: Our investor allocation module automates the input of investor
transactions and hedge fund income for each valuation period. Not only will the module allocate
income based on investor capital, it will also calculate management fees, incentive fees and net
asset values for each investor lot. Our module produces the required reports based on the setup of
the fund, streamlines the data process, and hence, helps to automate the administration of a
partnership fund.
All of our products and solutions are built and supported by a team of specialized developers, who
can integrate our solutions and tailor to the organization s needs.
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6. CaswilTM Solution Benefits
o CaswilTM empowers business users to automate and handle exception management at their
desktop, without having to learn any programming language.
o CaswilTM cuts back-office costs by reducing the requirement of large teams dedicated to data
processing.
o CaswilTM straight-through-processing (STP) solution will enable users to conduct instant data
mapping, matching data formats and layouts easily, regardless of platforms and sources.
o CaswilTM STP solution facilitates seamless data exchange between pre-trade and trade
execution, as well as trade and post-trade reconciliation and analysis. It is the link between
each step in the life cycle of trade execution.
o CaswilTM STP solution facilitates data processing in a systematic and consistent way, and
removes reliance on error-prone spreadsheets or manual data entry.
o CaswilTM technology uses time sensitive data processing, allowing systems to talk to each
other automatically, hence allowing NAV calculations as soon as trade data is available.
o CaswilTM technology is efficient, with the ability to empower high volume transactions from
1,000 transactions within seconds up to 700,000 transactions within 1 to 2 minutes.
o CaswilTM closes the gap between business and IT.
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7. About Caswil Corporation
CaswilTM is in the business of empowering hedge fund industry clients to achieve automation of
their data processing.
We empower hedge fund institutions, both large and small, to rethink and optimize their data
management process, using our state of the art straight-through-processing (STP) technology.
We bring to the hedge fund industry an innovative technology that transforms the way data
processing is carried out.
We have a team of specialized software developers with in-depth expertise in hedge fund
accounting and transfer agency, who can help our clients to integrate data management solutions
that tailor to their needs.
Our Unique Value Proposition
Hedge fund administrators and asset managers are beginning to respond to the demand for more
streamlined links with their fund of hedge fund clients, who have been used to quick and efficient
settlement and administration, position reconciliation and automated data upload. There is now a
greater need for a more seamless and automated data processing approach that reduces errors,
minimizes risks and reduces back office costs. With the products and solutions from CaswilTM, we
empower you to:
RETHINK your performance. Our business-oriented solutions enable you to perform your own
data processing easily. Our unique technology allows efficient straight-through-processing (STP)
between extensive number of data sources and layouts.
RETHINK your process. With our suite of applications, you will no longer require heavy systems,
nor massive headcounts to manage the processing of substantial data.
RETHINK your investments. We promise enhanced return on your system investments with our
latest and best STP technology that processes your information more efficiently. Your information
can now be harnessed to its maximum potential to provide greater insights.
Our Expertise
We specialize in straight-through-processing dealing with data standardization and exception
management, where automation has been difficult or impossible - such as OTC derivatives
processing. We have been working primarily with hedge fund administrators to close these gaps in
automation, and to optimize their data management process. Due to our software development
team s in-depth expertise in the business itself, we are able to help our administrator clients to
create the business workflow they want and maximize efficiency.
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8. Contact Us
Caswil Corporation
2405 Chemin Ste-Foy
Quebec, Qc
G1V 1T1
Canada
Tel: (418) 907-9465
Email: info@caswil.com
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