“So, you’re on tomorrow, I’m still on today.” - How to operate global capital markets in one solution

Patrick Sockett, product owner – institutional at GBST, talks about global capital markets, the challenges associated with trading across multiple regions, deadline hurdles, and how automated post-trade tech can deliver real-time clearing and settlement in a single solution

September 23, 2021 | GBST

The pandemic has propelled us into an environment where geography has become secondary. The ubiquitous Microsoft Teams or Zoom calls do not differentiate location when they bring everyone together in a virtual room with limited visual cues of where people are based. Conversation starters such as “what’s the weather like there?” and for east to west scenarios, “so you’re on tomorrow, I’m still on today”, occur frequently. Virtual teams comprising of regional experts, local SMEs, and outsourced resources typically operate this way.

But the markets we trade in are geographically and time-zone bound, with well-defined opening hours and operating schedules. Markets open in the morning, close late afternoon, and reporting submissions need to be completed by stipulated deadlines.

Trading timing challenges

Once an organisation expands into international markets, dates and cut-off times can present a significant challenge. A branch in the east will need to hold off closing books until all west-based trading is accounted for to ensure finance and risk teams know what open contracts are being carried. Branches in the west can’t have early markets in the east sending in trades for the next day when they’re still closing out the current day, as financial submissions for the current day cannot include the next day’s trades as the submissions would be incorrect.

The ideal situation is that the east should be able to keep operations open, accepting as many trades as possible before cutting off the day to meet financial and risk deadlines. Conversely, an entity in the US should be able to close out the current day without constraining trade support in Australia from starting the next day’s operations. In this scenario, tomorrow’s Australian trades are already being confirmed while the US is still closing today’s financial records.

Financial hubs present unique complexities

As business operations expand, financial hubs will be established, typically in APAC, Europe, and the US, that consolidate regional accounting and add multiple financial deadlines that close as the sun goes down in each region.

Business days and reporting dates must be scheduled to roll independently and this can only be accomplished by separating hub entity ledgers from the markets they trade in. Local market membership will then simply mean having a separate ledger, with the local financial controller managing their own books and records.

Jurisdictions with different accounting standards

On top of these complexities, different jurisdictions have unique accounting standards that must be adhered to. In the US, reporting must follow Generally Accepted Accounting Principles (GAAP), while International Financial Reporting Standards (IFRS) are typically stipulated in international markets.

This can make it necessary to report locally in one country’s regime while providing submissions to corporate general ledgers in another. There may even be a requirement to maintain two ledgers for a single entity; one for local reporting and another to comply with corporate standards. Financial controllers also need clear sight of the postings and trial balances, so manipulating data in extracts is not going to cut it.

24 hours/day trading of OTC products

When it comes to trading OTC products such as fixed income, the clock doesn’t stop – trading venues are available 24 hours a day. Reporting deadlines would become another business decision based on business ownership similar to the separation of ledgers from trading. Scheduling should be based on the timing of global trading inventory valuations, where the prices are sourced, and if the same products need to have multiple cut-off valuations per day aligned to ownership location. It is essential that the financial technology links an entity’s inventory, valuations, and income recognition to its underlying ledger so that financial controllers can make consistent submissions to authorities.

Solving the problem

Overcome these hurdles and you have a happy finance team coupled with a delighted operations team, all meeting client service level agreements (SLAs). Many Tier-1 firms have spent millions of dollars and many years designing in-house technology solutions to solve these challenges.

As teams transform and adapt to flexible, remote working environments, organisations need to consider adopting post-trade technology to accommodate real-time clearing and settlement in this virtual world via Software as a Service (SaaS).

Just as people are virtually brought together by Zoom and Teams, post-trade technology must be virtual and accessible anywhere. This can only be established when solutions can be run in the cloud and accessed via standard web browsers that are already on everyone’s desktop. It doesn’t matter if the user is in the US, Asia or elsewhere in the world, the same link takes the user to their global post-trade system. For an organisation to become future proof, both operations and technology need to be in place to deliver global market processing 24/5 and must be capable of meeting financial reporting deadlines.

The solution

There are SaaS platforms available that are equipped to tackle the current challenges head on, providing flexible solutions that support multiple independent markets, financial deadlines, and different accounting regimes. Users can consolidate their global market deployments into a single platform and operate 24 hours per day, allowing them to efficiently and effectively close the financial ledger aligned to local reporting deadlines, without disruption.

 

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