The Many BORs of IBOR
There are many drivers for a single view of positions and trade data, but the most immediate is to deliver the flexible, robust and granular data needed to support the wave of regulation impacting the financial services industry. The industry requires accurate and timely positions and trade data to appease a varied audience. These data sets have become known as the Investment Book of Record (IBOR). But hasn't the industry already bought, coded and implemented systems to deliver IBORs? The answer is, yes, in part. However, whilst the systems that are being used to deliver an Accounting Book of Record (ABOR) that comprising confirmed positions are the cornerstone of the IBOR solution, they only go some way to supporting the full requirements of an IBOR. Put simply, IBOR requires a position keeping engine with event management capability that allows the status of each transaction that makes up a position to be recorded through the trade lifecycle.
An IBOR that is status-driven should deliver the following views:
- Speculative - A front office focused view of positions that include estimated or "what-if" trades.
- Executed - A view of positions that includes all committed trades, a "trading view".
- Confirmed - The traditional core Accounting Book of Record that includes contractual positions.
- Physical - The view of positions that reflects the custodian, a "settled view".
It is acknowledged that most firms already have in place a book of record to enable them to perform aggregated reporting or make trading decisions from a single database or platform. The challenge is more the accuracy or evidencing of the controls that create this book of record plus the need for more transparency that a status-driven IBOR provides. In each scenario the IBOR needs to be an evidenced position derived from sources that can be audited but does not require further reconciliation.
The type of IBOR is dependent upon a company's operating model and the demands of systems and processes across the front, middle and back offices. This article explores the elements that comprise an IBOR and how they are utilised by investment managers.
Traded Book of Record (TBOR)
The Traded Book of Record (TBOR) recognises the holding of each asset based on any orders that have been executed or committed to, plus known corporate events with resulting positions collated into a single view. The TBOR would be used by investment managers to construct speculative and executed views. It is used to make investment decisions and ensure these decisions comply with regulations and client mandate rules. The cash positions tend to include actual and forecasted items comprising known payments and expenses plus income due from bonds or equities. The TBOR is typically maintained in an order management system fed by an overnight feed of position records and cash forecasts that is augmented during the day with trades, so that it can be used by the investment manager for portfolio modelling and trading.
Settled Book of Record (SBOR)
The SBOR comprises settled trades and actual cash at bank with no cash forecasting, intraday traded activity or trades awaiting settlement. A SBOR may only be required by investment managers that trade less regularly, or look only at cash positions that are based on cash received in the bank accounts. Some investment management agreements state in their rules that any trading activity needs to be based on actual balances, thereby eliminating the possibility of running overdraft positions.
Overnight Book of Record (OBOR)
The OBOR is generated when there is minimal system update activity and the window exists to feed the start of day routines. The OBOR takes into account the results of any auto generated routines, such as income and settlement postings on the day of the feed. This base position information is fed from the ABOR in order to get the most accurate start of day positions. Additionally, the OBOR can be used to check valued positions against post trade compliance rules.
Snapshot Intra-day Book of Record (SIBOR)
This SIBOR is in effect the TBOR but refreshed throughout the day, usually at 2 hourly "snaps" at 10:00, noon, 14:00 and 16:00. These snaps of the data are updated for trading activity, cash movements and corporate event information that have been updated since the last snap. The SIBOR is used to enable a risk assessment of the overall value of the funds. For example, it may be utilised by investment managers concerned with the fund's level of exposure to OTC derivatives, so as enable the re-alignment of collateral in order to minimise daylight exposure.
Reporting Book of Record (RBOR)
This RBOR is the valued consolidated view of positions needed to meet external reporting requirements. The RBOR supports client, regulatory and financial reporting. The RBOR has to be timely and accurate. Downstream reporting has to be able to aggregate exposure to allow an up to date view of risk and exposures in the event of a financial stress situation in the market or for an individual company.
Checked and Audited Book of Record (CABOR)
The CABOR comprises fully audited positions, and is usually available within one to two months of the period end. As a consequence, the CABOR is available too late for use in many operational processes. The use of the CABOR for formal period end reporting and the liability associated with reporting inaccurate information means that the timeframes for its delivery are unlikely to be reduced significantly.
Will a complete IBOR that satisfies the many audiences ever be built? Can the requirements continue to be met by the individual component BORs? Certainly the consolidated, event-driven view of positions to support each book of record described above is a challenge, but if met an IBOR can deliver benefits including;
- Improved data quality
- Better data governance
- More accurate and timely forecast data
- Reduced requirement for reconciliation
- Earlier identification of errors
- Easier aggregation of complex positions to reflect strategies and baskets
- Improved queries and reports.