Macquarie revamps reconciliation with Gresham Computing and Amazon Web Services
Australian broker Macquarie Futures has begun using a cloud-based reconciliation service from Gresham Computing and Amazon Web Services, which it says will help it to make its North American derivatives business more efficient.
Bank processes for reconciliation have come under increased pressure since 2008 as regulators in Europe, the US and other G20 countries have pushed for higher standards of transparency and accountability. Macquarie wanted to be able to reconcile all its open future positions and cash flows in real time, rather than over a longer period. It also wanted to deal with some of the more problematic areas in reconciliations, such as non-standard instruments like OTC derivatives and reconciliations between differing systems and companies.
The broker called on Bill Blythe, global business development director at Gresham Computing, to help some of the issues in reconciliation. Previous experience played an important part in the choice. Before joining Gresham, Blythe worked at post-trade and reconciliations technology specialist SmartStream, where he was responsible for North America and the UK. Much of that experience, he says, involved getting to grips with STP, middleware and message transfer.
“About three-four years ago, we saw there were huge challenges in reconciliation,” Blythe told Banking Technology. “Many of the existing reconciliation systems were built in the 1990s, when the only thing customers wanted was cash and securities reconciliation. It became very standardised and a lot of it was outsourced to India. But if you wanted to reconcile something that is non-standard, something that’s not in a Swift format, and you tried to use those systems, it became costly and time consuming and didn’t really work.”
The problem got worse, according to Blythe, when companies increasingly turned to spreadsheets as a means of bridging the gap between the capabilities of their systems and the needs of business. That in turn led to problems of manual input, human error and distortion. Inaccurate information held on spreadsheets played a central role in the Libor scandal last year.
In June 2012, Blythe joined Gresham and began to work on its Clareti Transaction Control solution, which was eventually chosen by Macquarie to help its reconciliation processing. CTC sends customers immediate alerts if a trade fails to complete or an error is detected. It also runs on computing power provided by Amazon Web Services, meaning it can easily be scaled up or down.
“We started trying to solve some of the problems in intra-day, intra-company and intra-system reconciliation,” said Blythe. “This has always been done on a spreadsheet, but the regulator is saying you can’t do that anymore. Especially when you’re dealing with long-term contracts that might expire in five years or more, you want to know if everything is OK before it settles, not wait years only to find out at settlement there is a problem.”
Much of the regulatory pressure goes back to the G20 reform agenda agreed at Pittsburgh in 2009, when the G20 countries agreed to cut systemic risk in OTC derivatives markets by mandating central clearing and reporting. OTC derivatives were to be standardised and traded on exchange-like platforms wherever there was sufficient liquidity. The influx of new instruments that need standards for trade reporting has been a major focus of industry concern in both Europe and the US, where the EMIR and Dodd-Frank regulations are being phased in respectively. Meanwhile, other standards such as Basel III have added to the regulatory burden.