- SimCorp StrategyLab paper highlights expanding role of an IBOR in delivering competitive advantage to investment management firms from front - to back-office
- Front-office investment decisions and risk assessment is compromised when based on data from traditional accounting systems or provided by outsourcing vendors
The paper explains how the IBOR – defined as a real-time position-keeping record that provides up-to-date information about current, projected, and historical positions and cash – has become essential in today’s trading environment. Not least firms that operate on disparate systems across multiple providers, or with parts of their operations outsourced, will often have difficulties in providing a timely and accurate overview of available positions and investible cash.
This overview is critical for the front-office to make well-informed investment decisions and effectively manage risk, particularly in an environment with increasing asset class complexity. In addition, regulatory demands are putting greater pressure on the need for quick access to consolidated data.
“Without accurate real-time position-keeping across all asset classes and covering events such as collateral, the front-office will often be forced to spend valuable time reconciling and keeping own position records, though still facing the risk of wrong decision making and non-optimal use of assets,” said Marc Schröter, Head of SimCorp Strategic Research and one of the contributors to the paper. “An IBOR presents a ‘single version of the truth’ which gives firms the critical and accurate overview essential to maintaining a competitive edge and managing risk.”
The paper highlights 10 key requirements for investment management firms seeking to implement an IBOR, which will best position them for future growth and equip them to manage their data issues effectively. These touch a number of areas, including full instrument coverage to accommodate the widened investment universe, tracking of the position lifecycle and cash and security forecasting to cope with increasing demands for collateral. In addition, it should allow a firm to identify its entire exposure to a single counterparty at speed in the event of market pressure.
It concludes by examining how an IBOR can be used to counteract the dangers of so-called legacy systems, where firms are reliant upon overlapping, ageing technology, which has been updated piecemeal over a number of decades, by drawing on these separate sources to provide a real-time overview.