Turn Regulatory Demands into Business Drivers: Automate the Trade Execution Expense Management Process

Terence FahertyGuest Contributor: Terence Faherty, head of product strategy at Bonaire Software Solutions

Beyond investor calls for increased transparency, regulations are pushing for a more accurate trading fee calculations and invoice reconciliation process.

A recent Bonaire poll revealed that many firms are challenged by data consistency and accuracy which raises concerns in light of today’s regulatory and auditing landscape. Going forward, firms must have complete audit trails which will enable them to demonstrate full compliance with these regulatory requirements. While examining and overhauling current processes, firms should consider how to comply with these new standards and positively impact both business processes and portfolio performance.

Existing systems augmented with manual and spreadsheet processes fall short in meeting new requirements and preventing operational risks such as expense leakage. Firms must implement a centralized revenue and expense management platform that accurately manages expense calculations and validation. A streamlined system should compute transaction based fees (e.g. execution costs, commissions), manage complex trading fee schedules and automatically validate and reconcile these expenses.  Having a rules-based, platform approach allows trading firms to essentially have an engine that calculates all trade execution costs at the trade level as well as reconcile their vendor payments.

Firms are challenged with trading desks that are not executing at the optimal transaction cost because their contracts are written at a desk level rather than at a global enterprise level. Most capital markets firms are unaware that they are overpaying for trade expenses or not receiving their due credits or rebates due to the lack of transparency across large volumes of trade data. Large trading firms have hundreds of contractual relationships with outside vendors. Some firms even have multiple contracts at the desk level with the same broker or exchange, each with different pricing for the same services. Firms should seek a solution that manages all vendor and client contracts in one homogenous structure, facilitating powerful analytics and forecasting. By digitizing rate agreements, firms will uncover process improvements and efficiencies associated with post-trade costs.

In working with an increasing number of execution venues, capital markets firms are faced with the challenge of managing post-trade execution expenses across a growing number of brokerage and exchange vendors. Automating the post-trade expense process from data capture, validation, reconciliation and allocation allows firms to:

– Reduce the cost, risk and time associated with manually intensive vendor invoice fee validation

–  Minimize fee leakage via fully automated validation of post-trade execution fees

– Optimize pricing agreements across the enterprise through cross-vendor product comparison

– Improve cash flow and management visibility through timely execution of reconciliation and payments

– Accurately allocate expenses across the firm using actual trade level data

– Increase overall profitability and performance

Delivering automation and data transparency is a must. Considering the demands of global regulators, financial institutions simply cannot afford to risk mismanaging trade execution costs. Improved data insight instills confidence at capital markets firms and enables them to optimize vendor agreements and lower operation costs while directing trade traffic that maximizes value. In knowing what they are paying and to whom, firms can save thousands if not millions of dollars a year and boost portfolio performance by generating alpha through the back-office.


To hear more from Bonaire attend ReCon New York this October 22, 2013.  Reconciliation and exception management is at an interesting crossroads when it comes to automation. This event will discuss why the overriding need for greater operational efficiency in reconciliation will cause many firms to seriously consider automated solutions or upgrade incumbent platforms that have fallen behind.

This entry was posted in Guest Blog, Operational Risk, Reconciliations, Regulation and tagged , . Bookmark the permalink.

One Response to Turn Regulatory Demands into Business Drivers: Automate the Trade Execution Expense Management Process

  1. zac says:

    Thanks for the nice blog. It was very beneficial for me. Preserve sharing this sort of ideas in the foreseeable future as well. This was actually some tips i was looking for, and i’m glad for you to came here! Thanks for discussing the such information with us

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