Watson Wheatley: Reconciliation Best Practice
Posted: 2 April 2017 | Source: Watson Wheatley
This paper provides an outline statement of what we consider to be best practice with respect to the use of reconciliation software used by asset managers. It is not a description of any particular product, although iRecsand Importer exhibit many of the characteristics described here. Rather it is an attempt to isolate what functions are important when supporting a process that all asset managers are compelled to do, however large.
Very little accessible information on this topic appears on the web. Much of the wisdom surrounding the design of reconciliation software is inevitably proprietary and protected by the vendor unless exchanged for your email address. Comparative analyses of different systems against a benchmark of key requirements do exist but are usually only available for purchase at significant cost. This paper aims to redress this in part by providing one vendor’s views about best practice and by making it available within the public domain.
This paper takes as context the typical scenario of the asset manager needing to reconcile trades, cash flows and the resulting cash balances and positions between their internal portfolio accounting system and data from an external service provider; a prime broker, custodian, clearer, counterparty or administrator. The principles discussed below however are to an extent generic and are equally applicable to other scenarios where trading data is held in disparate systems where there is a potential for difference e.g. order management to portfolio accounting, or risk system to outsourced operations function. The goal for the reconciliation system in this context is simply to find the differences and provide an environment where these differences can be managed through to resolution.
Our views are presented as a walkthrough of the steps of the reconciliation process, starting with where the reconciliation data comes from and culminating by deriving maximum value from the reconciliation data contained within the system.