A leading Global Hedge Fund needed help to solve its Reference Data problems, specifically the risk associated with missing notifications for Listed Derivatives.
Company overview
The Hedge Fund is one of the largest alternative investment firms, with more than USD$35bn in AUM. As the one of the leading market makers in the world, they trade products that include equities, equity options, and futures for retail and institutional clients.
Business situation
The Hedge Fund’s Risk & Compliance team flagged potential risks in its ‘Exchange Notification Monitoring and Processing’.
The existing processes were:
- Not centralised – different teams were using different datasets, and needed to stitch together the various notices to see the complete reference data impact
- Manual and risk prone – corporate action events were at risk of being missed and postponement/cancellation of notifications needed closer monitoring
- Not scalable – the processes did not align with the Hedge Fund’s aggressive goals of on-boarding more derivatives exchanges in the short-term, which increased the operational risk
With every notification at risk of being missed, incomplete or incorrect – this could have resulted in serious financial and reputational consequences for the Hedge Fund and its clients.
Analysis and outcome
After the Hedge Fund’s Risk & Compliance team completed a detailed investigation into their operational processes, the following recommendations were made:
- Establish a process and standalone team to capture Reference Data impacts published in Exchange announcements
- Continuous monitoring and maintenance of exchange websites
- Improve data validation and data quality
- Form an Exchange contact list and communication channel
- Correctly apply Reference Data changes corresponding to the notifications
- A standardised template for client communication
- Language translations
Solution
SmartStream RDU’s Exchange Notification Service (ENS) offered the Hedge Fund a complete solution for all of the recommendations made.
The ENS provides a normalised view of exchange notifications related to the management of listed derivatives reference data, sourced from over 100 exchanges. A large team of SmartStream in-house experts, generally with an exchange background, carefully monitor notifications and corporate actions to pick out any points that might have an impact on reference data relating to listed derivatives. Once gathered, data is cleansed, normalised and cross referenced.
Benefits
- Removes the operational overhead of monitoring for notifications from exchanges where derivatives are traded
- Minimises the need for expensive downstream data clean-up activities
- Lowers exposure to risk and improves compliance activities
- Drives quality improvements in trading and risk mitigation
