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runs that are delivered to their clients on T + 1 . The buy-side are subsequently looking at data on T + 1 and they need to set up complex reconciliations to identify the breaks . The buy-side check the trade and position data and send numerous emails to the various banks and business units that they have disputes with . The bank must investigate before deciding to make an amendment or disagreeing with the dispute . This is an immensely laborious communication and investigatory process that continues until one side realigns their booking to agree to the same swap data value .
There ’ s also an impact on the relationships between banks and their clients when errors occur . In the equity swaps market , if a corporate action has been closed out based on an incorrect position , then one side of the trade is going to have to take a hit on their P & L . Neither side wants to absorb the loss , and this can unnecessarily lead to negative consequences primarily as there is no centralised tool monitoring the day-to-day swap data for both parties to view the breaks .
Increase efficiencies , reduce risk With Traiana ’ s new Equity Swaps Lifecycle Management ( ESLM ) service , banks and their buy-side clients can now access the same reconciled data on a single platform which means , for the first time , top day break risk data can be viewed and tracked with confidence allowing swap desks to make the amends before cashflows are generated .
When a bank creates an equity swap instrument , they would typically create something called a swap wrapper . This is essentially the terms and conditions of an equity swap contract that is linked to the Master Agreement . If someone on the swaps desk changes a value in a swap wrapper , such as a change to the reset schedule from monthly to quarterly , this has a dramatic impact on the behaviour of the trade data that comes into their reporting .
As a result , there will be a significant impact on the swap value because the buy-side client would expect the swap wrapper to behave in a certain way . Such changes are challenging for the buy-side firms to identify as they are not associated to the standard swap reporting packs and are often missed , causing a plethora of problems downstream . Therefore , alongside the actual trade data , identifying the swap wrapper as a break source is key . The main causes of breaks can be stripped back to trades as 80 % and swap wrapper as the remaining 20 %. A central platform pulling data to show to buy-side clients , for the first time , a 360 view of main data sets across different trades will help address 100 % of the issues .
Towards more efficient matching and settlement of equity swaps cashflows Regardless of what 2021 has in store for global equity markets , equity swaps will continue to play an important part in how hedge funds and asset managers gain exposure to global markets . However , for market participants to benefit from the many advantages of equity swaps , longstanding settlement risk issues need to be ironed out . If firms have a central platform to manage data across different swaps , then the market will be better placed to more efficiently match and settle the swaps cash flow events and move towards reducing risk and increasing automation .
For more information and to book a demo visit our website or email us info @ traiana . com .
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