I S S U E 1 1 2 0 0 8 / 9

NewsMatchSmartStream Technologies’ Magazine for the Financial Services Community

INSIDE THIS ISSUE

Client case studies

Focus on Europe

Creating processing centres of excellence

Advancing the CIO’s strategic agenda

Celent – the cost of OTC Derivatives Processing

TakeControlwith Transaction Lifecycle Management®

Creating a Reconciliation Utility

The drive for new Cash Management technology

Delivering new levels of efficiency to Treasury Confirmations

OTC Derivatives Processing – the building blocks to greater STP

NewsMatch 2008 cover AW:NewsMatch 2005-6 cover 8/9/08 09:58 Page 3

Eliminating the barriers to Straight Through Processing

through the delivery of enterprise wide, real-time

Transaction Lifecycle Management (TLM®) solutions

2

It’s been more than 12 months since thecredit crunch first came to light and itsimpact is still unfolding. Firms of all sizesare now operating in a new environmentwhere efficiency, risk and cost are the watchwords.

The market conditions, with volume

spikes caused by ongoing uncertainty, have

impacted banks’ operations and highlighted

the need for efficient and cost-effective

practices. This situation has been further

compounded by the historic under

investment in the middle and back office

with many organisations lacking the systems

and processes to efficiently manage these

surges. This is particularly true in the more

complex OTC instruments increasingly

being used as firms look to diversify their

investment strategies.

It has also highlighted the difficulties faced

by firms in employing sufficient numbers of

skilled middle and back office staff in order

to manage and scale operations to meet

volume demand. Greater automation

removes many of these issues, replacing

inflexible processes with technology that

delivers a consolidated view of transactional

process, measuring risk across the enterprise.

While this combination of surging volumes

and the use of increasingly complex

instruments represents a significant

operational challenge to firms, it also creates

a catalyst for change. We are working with

our clients, including 75 of the world’s top

100 banks, to help them overcome critical

processing issues.

We have delivered highly flexible, volume

insensitive, transaction processing

environments to many of the world’s largest

financial institutions. SmartStream’s suite

of Transaction Lifecycle Management

(TLM) solutions has continued to evolve

beyond our traditional product set with

the introduction of TLM Trade Process

Management for OTC Derivatives Processing

and TLM Treasury Confirmations.

These developments are in direct response

to feedback from our customers and the

market in general, once again highlighting

the inherent flexibility of our TLM software

to efficiently deliver new solutions to the

market. Our service oriented architecture

(SOA) approach to building solutions,

the TLM Enterprise Control Architecture,

ensures that SmartStream can harness

proven components to rapidly develop

new solutions to meet emerging market

and regulatory challenges.

Welcome to NewsMatch | CEO Comment

Ken ArcherChief Executive Officer, SmartStream

2 Welcome to NewsMatchCEO comment

4 OTC derivatives processingThe building blocks to greater STP

6 Cash managementThe road to efficient nostro and corporate cash management

8 Treasury confirmationsDelivering scalability to treasury operations

10 TLM Enterprise Control ArchitectureAdvancing the CIO’s strategic agenda

12 Global news

14 Focus on Europe

15 Reconciliation utility Efficiency through consolidation

16 Creating a centre of excellence for reconciliationsCase study – Grupo Santander

NewsMatch 3

We have also seen success outside our

traditional core financial services market.

We are now examining how our TLM

technology can benefit other verticals and

industries, particularly within the finance

and treasury teams at corporates.

As business and technology needs change,

SmartStream is ideally placed to deliver

innovative solutions that match these

requirements. We are creating new service

models that deliver greater middle and

back office efficiency, both directly with

customers by powering internal utility

models and with external service providers.

We have worked extensively over the last

twelve months with one of the world’s

leading BPO providers, Tata Consulting

Services to develop and deliver an

outsourced reconciliations service, the

TCS Aspire Service. This service is now live

serving Deutsche Bank as its first client.

To provide greater capacity to our existing

markets and to enter new geographies we

are building relationships with trusted third

parties. Our commitment to serve our global

client base with the highest level of service

has never been stronger. In addition to

expanding our existing Professional Services

teams we have created new partnerships

with leading specialists, including Syntel,

to deliver further depth and capacity to

our global implementation teams. Over the

next 12 months I expect to make further

announcements about new partnerships

that will continue to expand our services

offerings and capacity.

Under the ownership of DIFC Investments,

SmartStream is continuing to grow its global

footprint having successfully launched an

office serving the Middle Eastern market,

based within DIFC. This is delivering a

direct route to the rapidly expanding

Middle Eastern market and offers exciting

opportunities to deliver TLM solutions to

new and strategically important markets

and clients that we share.

We have also made a significant investment

in the APAC region, with a new regional hub

based in Singapore. This will broaden and

strengthen our services throughout the

region, supporting our existing customers

more effectively and delivering a wider range

of solutions to meet that market’s needs.

Our focus has continued to be delivering

substantial value in the long-term

relationships we build with our clients

through operational excellence and greater

client intimacy. This has taken the form of

a customer satisfaction survey, customer-

focused events throughout the regions, one-

on-one briefings and feedback forums.

This ongoing investment in people,

technology and processes has already

reaped significant rewards and we

believe will continue to do so as we move

forward in conjunction with our clients.

I hope you find this issue of NewsMatch

interesting and informative in understanding

how we can help you and your organisation

to reduce operational risk and cost and

deliver continual process improvement.

18 General Ledger reconciliationsConsistency, control & compliance

20 Executive viewpointA revolutionary utility

22 TLM Reconciliations product focusDelivering unparalleled performance

24 Managing 400% volume growth with easeCase study – Challenger

26 OTC derivatives processingDelivering automation to the buy-side

28 Cash management Growing cash management in the Middle East

30 Building global networks tosupport business challengesCase study – Syntel

32 The path to derivatives automationThought leadership

34 Centralising reconciliations Case study – VUB Banka

4

The starting point for Celent’s researchwas to understand the drivers for OTCderivatives post-trade automation andascertain if it was internal cost pressures,increased regulatory attention or greater prudence and an assessment of operational risk within firms.

OTC derivatives volumes have been rising

since the International Swaps and

Derivatives Association (ISDA) and the

Bank for International Settlements (BIS)

started keeping track of trade volumes and

notional principal traded at the end of the

last century. ISDA reports in their most

recent Operations Benchmarking Survey

that monthly volumes of OTC derivatives

grew 38 percent in 2007. The chart (Figure 1)

highlights the total number of ‘events’, laid

out by type of OTC derivative transaction

– interest rate, currency, credit, equity and

commodity. Here we see the startling

increase particularly in Credit Default Swaps

and similar credit derivatives (73% in 2007).

Regulatory attention has also been a strong

motivator to automate, but this has been

concentrated on a subset of the overall

post-trade process. In March 2008, firms

representing three industry groups, with a

global view, sent a letter to the NY Federal

Reserve. The NY Fed has been leading an

initiative to improve the market infrastructure

for OTC derivatives. Several other regulators

have been involved with the process, notably

the UK Financial Services Authority. The ‘Fed

Letter’ is important in a number of respects:

� It is the first time that buy-side institutions

have joined the Fed initiative, which was

primarily championed by the largest

dealers (Group of 14, now expanded to

be the Group of 18). Hedge funds have

also become part of the project.

� The participants made commitments to

their regulator that they will automate what

are considered 2 of the most critical parts

of the processing chain – novation and

confirmation – and put firm dates against

these commitments. The timelines show

several milestones before year end 2008.

And last, but importantly, there are

prudential and operational risk concerns

that many firms have chosen to address.

As Celent states: “The main issues that have

propelled OTC derivatives to the forefront…

are the amount of losses that have been

incurred by the buy-side over the last decade.”

Celent, in research sponsored by SmartStream, has assessedthe overall cost structure for OTC derivatives processing and the basis for a multi-asset STP processing solution.

Industry research | Celent

The building blocks to greater STP

4,304

1,934

5,892

2,798

3,7413,612

2,1772,707 3,406

2,604

4,1473,912

7,0707,283

2,878

1,265

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2005 2006 2007 2008Year

Num

ber

of e

vent

s

Interest rate

Credit

Equity

Currency

Commodity

883

Figure 1: OTC Derivatives – Average monthly event volume by product

OTC derivatives processing

Celent’s findingsThe Celent research discovered that the

cost of derivatives processing can be split

roughly 50/50 between allocation and

confirmation tasks, and post-confirmation

tasks, including settlement and collateral

management. Regulators, mindful of the

systemic and market risk issues, have placed

great emphasis on automating Notice of

Execution (NOE) and confirmations. But

the cost improvement opportunities fall

equally to settlement and post-settlement.

The Celent study, developed from detailed

interviews and proprietary data, identified

the building blocks of a multi-asset STP

solution and aimed to get beneath the covers

to assess the overall cost structure for OTC

derivatives processing, breaking out relative

costs across the different types of OTC

derivative transactions.

The chart (Figure 2) provides the Celent

analysis of relative costs for the different

parts of the operations chain.

Celent provides a framework for thinking

about automation, laying down the

principal goals of any automation initiative:

� Process acceleration: This objective

relates to how fast an OTC derivatives

post-trade processing step can

be completed.

� Processing error reduction: This

objective is concerned with the way to

eliminate costly human error from the

OTC derivatives post-trading process.

� Processing capacity: This objective

relates to how many OTC derivatives

transactions an operations group can

complete within a certain period of time.

How will the industry and firms movetheir automation ambitions forward?Beyond the boundaries of the firm, Celent

observes that “buy-side demand points in

favour of centralisation and user communities.”

The report highlights the utility-like

approach of confirmations processing

platforms like DTCC’s Deriv/Serv and

Markit Wire. Celent observes that in the

future, “exchanges or even a group of

dealers may expand to assume the role of

central counterparty to some of the more

vanilla products that now trade OTC.”

In terms of spending priorities in order

to boost automation, Celent reveals that

based on their cost analysis and the detailed

executive interviews, buy-side firms will

“heavily emphasise the post-trade,

post-confirmation process.”

Within the boundaries of a firm, buy-side

executives are focused on flexible systems

which, according to Celent’s interviews,

“can accommodate or ‘plug in’ with existing

systems and offer workflow and trade

lifecycle monitoring.”

It’s clear from Celent’s assessment that if

firms are going to successfully negotiate the

challenge of OTC derivatives operations,

they’ll need a platform that provides the

flexibility to knit together the complex

series of events that make up the derivatives

processing chain.

To download an extract of the Celent

OTC Derivatives report, please visit:

www.smartstream-stp.com/otc-derivs

5NewsMatch

Figure 2: Percentage of cost per trade

100%

80%

60%

40%

20%

0%Interest rate Credit Equity

Percentage of Cost Per Trade

6

Cash management

The road to efficient nostro andcorporate cash management

Tim MartinSenior Business Consultant, SmartStream

Corporates driving process improvementsBanks are under pressure to attract corporate

customers through the provision of new

tools and services that can improve the cash

flow journey. At the same time, customers are

demanding more of these services at a lower

overall price, squeezing margins even further.

Cash flow forecasting and cash pooling/

netting are critical services that demand

timely, rich data in order to maximise their

efficiency. So its little wonder banks are

wrestling with service issues when many

still rely on spreadsheets.

Corporate cash management demands are

acting as a catalyst for banks to examine

their cash management infrastructures to

deliver greater value. A knock-on effect is

that by delivering these services to clients,

banks can use similar processes internally

for nostro accounts. The final destination is

the same for both internal and corporate

cash management – more effective use of

cash and liquidity.

Nostro cash management Bank projects to streamline back office

processes can have a knock on effect on

their nostro cash management. With

transactions settling faster banks need to

fully understand the impact that can have in

the management of associated cash accounts.

The more complex nature of transactions

has also led to a wide variety of settlement

solutions being implemented, whether by

product or by region.

The nostro cash manager requires real-time

feeds of all cash flows at the start of the

transaction lifecycle rather than on value

date. To improve the accuracy of the balance,

updates are required during the transactions

lifecycle, in particular real-time advices of

credit or debit from the nostro agent

themselves in order to accurately measure

funding and liabilities.

Cash projections and forecastingCash forecasting is a critical service, as

it supports the treasurer to deliver more

efficient cash handling and is an essential

ingredient in effective risk and liquidity

management.

The corporate treasurer now uses more

complex instruments, including securities,

FX and derivatives to enhance returns. But

first they require accurate data to forecast

the core cash balance and available funds

that determine any investment decision.

As a result, the treasurer must ensure they

know where the cash is and how much is

available – and in which currency, location

or legal entity – at any given time. They

also require different data views in order to

forecast funds appropriately. This involves

maintaining a bird’s eye view of cash flows

with the ability to drill down into detail by

various parameters.

Cash management solutions cover a wide spectrum of functionality,from providing a value added service to major corporate customers to managing organisations’ own nostro accounts.

At the heart of efficient cash management is real-time data, enablingbanks and corporates to more effectively manage their cash balances,reduce unnecessary costs and increase returns from their balances.

NewsMatch 7

Delivering proactive intra-day cash management Real-time data is critical to move away from

the traditional reactive cash management in

nostro accounts and for the delivery of new

services to corporates. A proactive, real-time

approach helps to eliminate the costs of

incurring unnecessary settlement and risk

exposure in the market.

Cash managers also require a single view

to monitor different cash status levels

within the nostro. This enables them to

determine the probability of settlement

failure and the risk of potential loss

resulting from the incorrect positioning

of currency balances. As a result the cost

of covering overdrafts is also reduced

by ensuring responsible parties are aware

of funding requirements as they occur,

enabling them to act faster and manage

balances more efficiently.

Improved visibility into cash exposure for

future value dates provides treasuries with

the information required to manage their

liquidity better. This potentially reduces

costs by allowing them to operate with more

efficient liquidity ratios and make better use

of collateral and resources. The treasurer can

then use the appropriate financing vehicles

or hedge strategies to effectively execute an

investment strategy.

The flexibility of drilling down from a bird’s

eye view to the transaction level also offers

other benefits. For example, the cash

manager can use the data to aggregate

balances by any means – currency, legal

entity, geography, line of business – and

view equivalent balances in any currency.

Critically, it would also enable a cash

manager to view opportunity costs and

calculations against account balances,

highlighting any revenue opportunities.

This could take the form of avoiding the

use of costly overdraft facilities when cash

resides in another account within the bank

or corporate. It could also mean drawing

attention to netting/pooling opportunities

to deliver a greater return on funds.

Using intra-day data can enable a bank to

provide forecasting functionality, extend

its corporate cash management service

and set it apart from the competition.

Providing secure browser-based access

back out to a corporate enables them to

monitor positions, report and project

using different scenarios.

Managing cash balances with statement-

based data is a deeply flawed approach,

much like trying to drive a car by looking

in the rear-view mirror. Real-time data

creates a more proactive cash management

operation, from lowering operational

risk and cost, and improving cash and

liquidity management.

As corporate treasury teams and nostro

cash management teams continue to evolve

and gain in strategic importance they will

demand more efficient tools. The first step is

to break down silos through enterprise wide

real-time data. This undoubtedly presents

an operational and IT challenge for banks

but one that is definitely achievable.

8

Treasury operations renovation at banks– the overhaul of Treasury systems,including those for confirmation matchingand reconciliation – is complemented bythe deepening of participation in FX andrelated markets outside of the bankingarena. The key link between the two istransaction volume growth.

In its last Triennial Survey, in 2007, the

Bank for International Settlements (BIS)

found that the overall market for FX

products had grown nearly 70% since

its previous review. Moreover, volumes

originated by hedge funds, mutual funds,

pension funds and insurance companies have

more than doubled over the same period as

these participants have looked to hold more

internationally diversified portfolios.

The second aspect to consider is increased

trading of more complex instruments such

as OTC derivatives. The BIS survey revealed

increases of more than 70% for FX and

interest rate derivatives classes. These

instruments necessitate distinct processing

requirements and their operational risk

profile is significantly higher.

Renovating treasury operations presents

some distinct challenges. Treasury

instruments already represent the biggest

traded market, with turnover in excess of

$3.2 trillion daily. Add on to that the

projected levels of growth and the additional

demands placed by complex derivatives

products, and it is easy to see why treasury

operations directors are re-evaluating their

supporting systems.

Renovating treasury operations requires

focusing on a number of goals:

� Building a sustainable operations

environment that will carry the

firm through growth in transaction

volumes in coming years.

� Ensuring the technology can handle

the complex processing demanded by

OTC derivatives.

� Taking advantage of the new tools

available to understand the end-to-end

operational processes and provide the

management information to improve

the operation over time.

TLM supports volume growthTLM Treasury Confirmations delivers

comprehensive real-time, enterprise wide

matching and management of financial

instruments including FX and Money

Markets, Derivatives and Precious Metals.

Its wide range of both instrument and source

coverage supports treasury renovation

projects for all types of institution.

A critical characteristic of the treasury

operation is extreme high-volume processing.

The goals must therefore be to provide

scale for the future and reduce manual

intervention to an absolute minimum.

TLM Treasury Confirmations delivers a

highly scalable solution with the highest

automatch rates in the industry. Its

combination of multiple match passes,

the ability to both reconcile confirmation

messages in real-time and alert users to

outstanding confirmations as they occur,

drastically reduces the need for costly

manual intervention.

Designed to meet the transaction volume challenge, TLM TreasuryConfirmations enables banks to deliver new levels of efficiency totheir treasury operations. It provides greater control and visibilityinto the confirmation of all treasury instruments, helping to deliverlower operational costs and risk.

Treasury confirmations

Delivering scalability to treasury operations

NewsMatch 9

Continual process improvement must

be built into the new treasury platform.

The system must also be configurable –

from the data schema and match rules

through to the workflow and dashboard

– providing a basis for operations over

the coming years.

TLM Treasury Confirmations is designed

to be a dynamic solution, constantly

learning to further boost auto match rates

and avoid exception storms. It enables

firms to define and refine their match

rules and display confirmation and

exception data through a flexible thin

client user interface.

Introducing an exceptions-based process

enables firms to create more proactive

treasury operations. When the initial

error is investigated and fixed manually,

TLM then finds all transactions with

the associated error and fixes them

automatically. This removes the need to

investigate and manually fix every single

transaction, further reducing effort and

cost. Where a naming convention is

involved, TLM Treasury Confirmations

learns the alias, improving data loading the

next time and matching it to the correct

transaction and counterparty information,

further improving processing efficiency.

We have outlined some of the critical

elements for firms to consider as they set

out to ensure their treasury confirmations

and reconciliation platform match their

operational needs today and into the

future. TLM Treasury Confirmations

places treasury operations directors in the

strongest position to renovate and remove

both risk and cost from their organisation.

TLM Treasury Confirmations

Every year SmartStream invests about 15%of total sales on Research & Development.By comparison, Booz Allen reports that theGlobal Innovation 1000 – those companiesconsidered the world’s innovation leaders – average just 4.2% of sales spent on R&D.SmartStream’s R&D investment isconcentrated in furthering the capabilitiesthat CIOs require of their strategicoperations platforms.

What are the architectural principles that

CIOs value? Each year, industry analyst

Gartner asks CIOs for their business

priorities for the year ahead. In 2008,

Gartner’s questions returned the Top 10

results (shown below). CIOs will continue

to tune their business processes, think

harder about getting new customers, make

sure their current customers remain loyal,

and pursue new markets – both by type

and geography. Crucially, they will attend

to these priorities with, in most cases, a

stable or even reduced IT budget.

Given these pressures and resulting business

priorities, CIOs and their IT leads have

looked to implement strategic operational

platforms that will advance the main

business priorities that CIOs have

identified to Gartner.

Strategic operations and modernoperations environmentsMany CIOs look for a handful of essential

qualities when they define a strategic

operations platform:

� Enterprise wide, crossing as many lines

of business as possible in order to

capture the greatest economies of scale

� Extremely high performance and

highly resilient

� Capable of being widely distributed, at

low cost, to support a mix of onshore,

offshore and outsourced operations

� Adapt readily and quickly to change;

responsive to business pressures

� Agile and transparent – giving visibility

to complex processing

Why an Enterprise Control Architecture? Over the last two years, SmartStream’s

technology investments have been driven

forward under the guiding principle of

Transaction Lifecycle Management (TLM)

and the unifying platform represented by

the TLM Enterprise Control Architecture.

The goal has been, first, to match the

platform’s capabilities with the enterprise

operations qualities that CIOs demand,

and second, create an environment where

SmartStream can become more efficient

in developing solutions, using common

services to speed time to market.

10

TLM Enterprise Control Architecture

Kulvinder Kandola Development Director, SmartStream

Top 10 Business Priorities 2008

Enterprise CIOs All CIOs

Improving business processes 1 1

Attracting and retaining new customers 2 2

Expanding into new markets or geographies 3 4

Creating new products or services (innovation) 4 3

Reducing enterprise costs 5 5

Expanding current customer relationships 6 7

Increasing the use of information/analytics 7 8

Acquiring new companies and capabilities (M&A, etc.) 8 10

Targeting customers and markets more effectively 9 9

Improving enterprise workforce effectiveness 10 6

Source: Gartner

Advancing the CIO’sstrategic agendaSmartStream’s R&D investments are directed at delivering a unifiedarchitecture – the TLM Enterprise Control Architecture – supporting globalCIOs and their operations strategy.

NewsMatch 11

The result: A unified architecture that

advances the business priorities of CIOs,

and offers the strongest Return on

Investment, at the point of implementation

and over time.

TLM is SmartStream’s unique approach to

solving operations processing challenges for

our customers by understanding the end to

end transaction flow, and building control

through automation and visibility.

TLM is founded on 4 key principles:

� Manage transactions over their

entire lifecycle

� Move to a real-time view of transactions

� Establish an exceptions-based process

� Create visibility into operational processes

The TLM approach brings important

benefits: risk and cost control; transparency

and predictability of processes; great

customer service; the agility and

responsiveness that means firms control

market and regulatory change, and speed

time to market for new functionality,

supporting their business priorities.

TLM Enterprise Control ArchitectureSmartStream delivers the benefits of

Transaction Lifecycle Management through

a unified technical infrastructure, the

TLM Enterprise Control Architecture.

� TLM Control is SmartStream’s Business

Process Management (BPM) layer,

providing integration with other systems,

the ability to transform and normalise

data; and workflow capabilities that

automate and connect people, processes

and systems.

� TLM Common Services deliver

many of the functions used across all

SmartStream solutions. TLM Common

Services provide a unified approach to

solution development, with consistency

in the way services are applied; they

provide better and more predictable

integration with third party applications,

and give more value for our customer’s

investment by speeding time to market

for new functionality.

� TLM WebConnect is SmartStream’s

Business Activity Management layer – a

functionally rich and flexible presentation

that shows underlying data in a way that

allows managers to understand, benchmark,

control and improve operational processes.

� SmartStudio comprises SmartStream’s

configuration tools. Through SmartStudio,

customers extend the configuration of

SmartStream solutions to fit their

individual business processes.

Meeting CIO prioritiesIf we assess the business priorities uncovered

by Gartner, we find that the TLM Enterprise

Control Architecture is designed to provide

CIOs and IT leaders with the right tools to

get their jobs done.

It delivers an end to end process so that

control is exercised over it and process

improvement can be realised. It provides

firms with the ability to respond efficiently

to new customer demands and track

performance against expected customer

service levels.

The TLM Enterprise Control Architecture

is an agile platform that adapts to changing

markets and internal innovation. It is a

true enterprise platform, one that scales

to a CIO’s needs and captures the widest

possible economies of scale.

TLM Enterprise Control Architecture

12

Kaupthing Singer & Friedlander automatesreconciliations, investigations and confirmations

Kaupthing Singer & Friedlander (S&F) is a specialist banking group offering products and

services in corporate and private banking, treasury and asset finance. Corona is being used

to automate reconciliations and exception management processes across the bank and its

S&F Investment Management (SFIM) subsidiary. The solution replaces its previously

manual processes and disparate systems, eliminating the need for re-keying information,

reducing errors and minimising risk.

Customer self-service deliveredover the internet

Raiffeisen Zentralbank Österreich AG (RZB),

has implemented TLM Corona to extend its

integrated reconciliation and investigation

capabilities to customers over the internet.

Using the TLM WebConnect thin client

solution as a secure browser interface, RZB

will enable customers to proactively raise

exception cases. This approach is designed

to reduce risk and cost for customers

across RZB and its 17 subsidiary banks

operating in Central and Eastern Europe.

“Clearly if we can reduce the costs in the

investigations department, we can deliver

a more cost-effective service to our clients,”

said Walfried Lemerz, Head of Transaction

Services, Infrastructure Department, RZB.

“We believe with TLM Corona we have

the solution that will enable us to deliver

greater self-service elements and efficient,

more personal customer service that will

differentiate us from other banks.”

Barclays Global Investors selects TLM for processing utility

The decision by Barclays Global Investors (BGI) to invest in TLM Reconciliations was to deliver a single processing utility for its global operations. The solution is beingrolled out across three countries, with BGI Australia’s operations the first to go live,reconciling its cash and holdings transactions. Furthermore, BGI is using the solution’sthin client user interface, TLM WebConnect, to provide a single window into thereconciliations process.

Michael Garrett, Head of Operations at BGI, Australia, said: “We are continually

looking for methods to embed processes and controls that deliver greater efficiency to

the business. As a leading global institution, BGI needed a solution that was capable

of automating a variety of instrument and transaction types across the BGI group on

a daily basis. TLM Reconciliations matched those requirements, delivering a single,

scalable solution.”

Awarded the ‘BestCorporate Actions Vendor’

SmartStream has been awarded ‘Best

Corporate Actions Vendor’ at the 2008

Inside Reference Data awards. “Our readers

voted for SmartStream as the best corporate

actions vendor, recognising the company

for its ability to help financial institutions

automate corporate actions processing

and improve efficiency,” said the Editor,

Tine Thoresen, “We introduced the best

corporate actions vendor category this year

as automating corporate actions processing

is continuously being pushed up the agenda

due to globalisation of financial markets,

increased complexity of notifications and

growing volumes of events.”

Global news

Ongoing success at US buy-side firms SmartStream’s TLM Reconciliations continues to be selected by leading US buy-sideorganisations due to its ability to handle multiple instrument types while also offering the scalability to process large volumes. The latest buy-side customer, a leading US Investment Manager with a large alternative investment portfolio, is replacing a mixture of legacy in-house systems and manual processes with TLM to create a single reconciliations platform.

Lou Longhi, Managing Director - Americas, SmartStream Technologies, said: “Investment

Managers and hedge funds are some of the most innovative institutions in the financial

markets. However they are now finding that their existing operational processes no

longer provide the levels of visibility and risk control that they require to support their

investment strategies and deliver quality customer service. TLM can help these institutions

by replacing limited technology and automating manual processes to help reduce

operational risk and cost and increase control throughout the transaction lifecycle.

NewsMatch 13

Further investment for Asia PacificSmartStream’s Asia Pacific operations, which cover Australia, New Zealand, China, India,Japan, Korea and the ASEAN countries, has experienced significant growth over recentyears. This latest investment reflects both the company’s focus on serving the newlyexpanded client base and recognition of the region’s continued economic growth.

Richard Cummings, who until recently successfully managed SmartStream’s operations in the

UK, will be responsible for leading the company’s investment in the region, commented, “It’s a

region I know well and one of the world’s most exciting markets. As firms across the geography

continue to grow at a rapid rate, there’s a real need for better operational risk and cost control.

SmartStream has already established itself as the de facto provider of Reconciliations and

Corporate Actions solutions, however many of the company’s latest solutions have yet to be

introduced to the region. Over the coming year we’ll be introducing solutions for cash and

liquidity management, treasury confirmations processing and trade process management.”

Go-live for new Internet payments firm Ivobank is a new online bank, based in London, specialising in payments and money transfer services for businesses and

customers. Ivobank represents an alternative to the current payment providers andcombines the simple, fast and cost effective service of an online payments companywith all the benefits, peace of mind, security and privacy of a UK-licensed bank.

In order to launch, the bank needed a solution to reconcile cash entries on its general ledger

against the settlement bank account and the corresponding payment agent. Ivobank chose

TLM Reconciliations to ensure it had sufficient flexibility and scalability to grow as the

business transacted new currencies and volumes increased.

Leading the way inthe Middle EastRecognising the importance of one of the

world’s fastest growing and dynamic financial

centres, SmartStream has opened its Dubai

office to serve the diverse financial

community in the Middle East. This is a

significant step for the firm’s ongoing direct

investment in the region. SmartStream will be

offering its range of market leading solutions,

already used by more than 75 of the world’s

top 100 banks, direct to the Middle Eastern

market. The company’s flexible software

design ensures it can rapidly deliver solutions

that can create more efficient, customer-

focused, cost-effective, compliant operations

for the region’s financial institutions.

SmartStream’s office is based within the

landmark building, The Gate, home of the

Dubai International Financial Centre (DIFC).

This location, at the heart of a globally

important and rapidly expanding financial

centre, will enable SmartStream to quickly

gain momentum in the market, accessing

potential customers and partners as well as

opinion leaders from day one.

SmartStream launchesTreasury Confirmation solution

SmartStream’s TLM solution for Treasury

Confirmations has been designed to

deliver the highest auto match rates for

the full range of treasury instruments and

deal sources, combined with the enterprise

scalability to manage soaring volumes.

By replacing legacy applications and semi-

manual processes with a single solution,

TLM provides greater control and visibility

into the confirmation of any instrument,

helping to deliver lower operational costs

and risk. See pages 8 & 9 for more >

TLM to offer outsourced tradeprocess management services

TLM Reconciliations is being implemented at Capita Financial Group Limited (CFG) tobuild a common reconciliations platform to replace manual processes and deliver moreefficient exception management. TLM Control will replace the firm’s manual tradecapture to boost processing efficiency for its range of clients and increase StraightThrough Processing (STP) rates.

Karl Midl, Programme Director at CFG, commented: “TLM is enabling CFG to create a

global platform capable of processing all transactions irrespective of instrument type or

complexity. The implementation is part of our ongoing business transformation and

supports our commitment to delivering the most innovative and flexible services to

our clients.”

The TLM platform will automate disparate processes to deliver greater operational visibility,

drive out cost and enhance control. TLM WebConnect, SmartStream’s functionally rich web

portal included as part of the TLM platform, will be used to support rapid and cost-effective

deployment of the solution globally, and provide users with a consistent user interface.

14

Focus on Europe

The European financial services markethas historically been one of the mostdynamic with new industry initiatives and EU regulations, providing a constantcatalyst for change. From Basel II throughto SEPA and beyond, SmartStream has along and successful history of supportingEurope’s financial services organisations –local banks, private financial institutions,processing utilities and leading globalbanks – to help them overcome theiroperational challenges.

Our European headquarters in Vienna serve

as a hub for SmartStream’s eight European

offices that support the Western European

markets as well as the emerging markets

within Central and Eastern Europe (CEE).

It is also home to one of SmartStream’s

product development centres, focused on

our TLM Corona reconciliation and Trade

Finance solutions.

The Vienna product centre is continually

delivering leading edge technology to our

clients to support their evolving business.

For example, the Austrian RZB group

is using TLM Corona to service its

expanding presence in CEE through

15 subsidiary banks in the region. It is

using the solution’s web-based user

interface to deliver innovative self-service,

enabling customers to raise investigations

into payments.

Our local presence in Vienna, Frankfurt,

Dubai, Paris, Madrid, Milan, Zurich and

Luxembourg means we can effectively serve

the diverse and demanding financial services

community in the key European markets.

It also ensures we can build on our

personal relationships with existing and

new customers as a trusted partner,

understanding their business needs, local

requirements and technology issues.

In many Western European countries we

have an established presence through our

reconciliations solutions. As these markets

have evolved, so has our technology

through the provision of existing solutions

that offer the inherent flexibility and

scalability to manage changing market

and regulatory pressures.

We have also developed new solutions

to address specific processing challenges,

some of which you can read about in this

edition of NewsMatch. We are particularly

proud that our first TLM Trade Process

Management customer has gone live

in the region.

But we never stand still and we are looking

for expansion into new verticals such

as corporates, insurance or public

organisations. We are actively examining

new markets that could benefit from the

robust and proven software used by 1,000

clients globally, either through our network

of resellers or by opening direct operations.

We are committed to continue investing and

strengthening our operations throughout

EMEA to meet customers’ needs and to

become their long term strategic partner.

One of our most important recent

achievements in EMEA has been the

successful launch of our Middle East

operations. SmartStream has opened its

office at Dubai International Financial

Centre (DIFC), the heart of the Middle’s

Eastern financial services market, and have

already witnessed success in this strategically

important and fast growing market.

Christian SchieblRegional Director Europe, SmartStream

In a geographically and culturally diverse region, SmartStream’slocalised approach enables the company to deliver operationaladvantage to clients’ middle and back offices.

New horizons

15NewsMatch

Taking an enterprise wide view ofreconciliation and exception managementfunctions is essential to achieving asustainable and competitively advantagedoperational environment. Reconciliationutilities – sometimes referred to ascentres of excellence or shared services – offer significant opportunities to firms of all sizes to do just that.

In the rapidly evolving market of cyclical

trading volumes, new instruments,

industry initiatives and regulatory scrutiny,

firms need to evaluate new methods for

creating efficient post-trade operations.

As you will see on the following pages this

can be an internal centre of excellence as

developed by Santander, a global Top 10

bank, or through a full business process

outsourced service as provided by the

TCS Aspire Service. At the heart of both

approaches is SmartStream’s TLM

Reconciliations (see box out).

Why should you consider a reconciliation utility?Regardless of their scope, processing

utilities can deliver a more flexible use of

resources, lower cost structures, unified

technical platforms, sharing of best practice

and improved staff retention. They also give

managers a perspective on the process that

allows them to understand operational risk

and to build continual improvement into

reconciliation processing. Several firms

have seen a return on investment of up to

100% or more, and break-even within one

year with reconciliation utility projects.

This approach to reconciliation and

exception management through establishing

a central utility ensures a greater focus on

operational support functions. Moving

reconciliations from siloed, product or

geographic-based teams enhances their

ability to support core functions. Utility staff

can focus their expertise on reconciliations

and exception management to ensure they

are performed in an efficient, timely and

cost effective manner.

There is a clear technology advantage in

consolidating onto a single platform that

eliminates multiple vendor relationships.

It reduces maintenance overheads as

there is no longer a need to maintain

various software and databases. Data

feeds and communication links are more

easily managed.

Service levels can also improve by

moving to a utility model as client facing

operational teams within a utility become

subject experts delivering improved

capability to handle client exceptions and

reporting. The utility creates a positive

differentiator leading to more business

from existing clients and, potentially,

assists in bringing new clients to the firm.

This close relationship also enables

continual process improvement with

a feedback loop from the utility to

operations teams. Root cause reporting

on exceptions helps to identify transaction

or data elements that cause mis-matches.

Operational procedures can then be

amended to prevent such errors from

occurring in the future, improving client

satisfaction and overall efficiency.

Reconciliations Utility

As institutions look to improve processing efficiency and deliver greater economies of scale, the utility model is gaining momentum.

Efficiency through consolidation

TLM Reconciliations is the industry-leading Reconciliation Utility platform delivering the full set of capabilities required for success.

� Scalability and ultra-high performance� Ability to perform any kind of reconciliation – all instruments, positions and transactions� Fully flexible matching rules and the most advanced matching algorithm on the market� Workflow capabilities to extend automation capabilities through to exception

resolution and repair� Lowest cost and most flexible web-based user interface� Ability to monitor and control the end-to-end process, establish metrics, track and

report them, and improve operations accordingly� Ability to customise and change data, match rules, workflow and presentation quickly

and easily – continuously improving your operations

You can find more information about how SmartStream is helping to build firms enterprise capabilities, including a white paper available for download: www.smartstream-stp.com\recs-utility

Reconciliation utility

16

Case study

Spanish financial services firm GrupoSantander is one of the world’s largestbanks, with 65 million customers globallythrough a network of retail focusedbanks. It is constantly examining how to delivery greater efficiency in itsoperations and benefit from economies of scale through the use of commonplatforms, such as its in-house developedcore banking system Parthenon.

As part of this strategy, Santander is

creating shared service centres where it

can develop and deliver operational best

practices across its subsidiaries, including

Banco Santander, Banesto and Abbey.

“With a fragmented back office

infrastructure of manual, semi-automated

and automated processes managed on

a business line and geographic basis,

reconciliations were chosen as the first

element to use the service centre model,”

explains Mayte Valverde, Operational

Model Manager, Grupo Santander.

“We had inconsistency in the way we

managed our back offices and wanted to

introduce single, consistent, scalable and

re-useable reconciliations processes across

our operations.”

Developing the shared service centreReconciliations were selected due to their

business-critical nature, with Santander

estimating it could centralise up to six

million daily transactions. The project also

served as a blueprint for subsequent shared

centres that Santander is designing for

payments and reference data.

“The driver was to reduce risk through

more efficient reconciliations and reduce

cost by replacing multiple vendor and

in-house systems. This would ensure

Santander gained visibility into our

exceptions to better understand where

issues were occurring,” says Valverde.

Santander’s Spanish and Portuguese

operations already used SmartStream’s

Corona product, leading the bank to

investigate how the TLM Reconciliations

solution could manage the reconciliations

service. The bank undertook a rigorous

evaluation exercise involving stress testing to

ensure the solution could process large data

loads and a Proof of Concept for Santander’s

treasury team processing swaps.

Scalability was critical as Santander

continues to expand its branch network,

already the largest of any retail bank, and

drives greater volume through the service

centre, says Valverde.

“Santander was familiar with SmartStream

and we were impressed by the company, the

support it had provided on Corona and its

vision for the TLM solution. We compared

TLM against other vendors and it was clear

from the testing and data loading that it

was the best product for us to use as the

platform in our reconciliations shared

service centre,” she adds. “We also had to

take into account our global expansion

plans that would require new reconciliation

types in the future. That was a decisive

factor in choosing TLM as it offered the

flexibility to bring new business lines and

transactions into the centre.”

Creating a centre of excellence for reconciliations

Mayte ValverdeOperational Model Manager,Grupo Santander

Case study | Santander

Santander is introducing shared service centres across its business to deliver operational best practice. Using TLM Reconciliations at itscentre, Santander has created a highly scalable centre of excellence,consolidating processes and systems to reduce operational risk andimprove efficiency.

Delivering economies of scale Santander’s shared service centre went live

on time and on budget in 2007. The centre,

with TLM at its core, is reconciling Grupo

Santander’s P&L records to produce timely

and accurate monthly reports for Bank of

Spain, and cash and securities reconciliations

for Banco Santander and Banesto in Spain.

The service centre is also being used by

Grupo Santander’s treasury departments

to process swaps, derivatives confirmations

and reconciliations for the risk management

department to provide data back to the

Bank of Spain.

“The shared centre gives us a best-practice

reconciliation service in a standardised

and centralised model. That enables us to

define the processes for different types of

reconciliations while having the flexibility

to adapt to local or business-specific

requirements,” says Valverde. “This process

specialisation delivers greater operational

efficiencies and enables the creation of

synergies and cost savings. For example, we

no longer have to maintain multiple systems,

pay for multiple licences or train people on

different systems. Our risk is also reduced

as we no longer rely on a mixture of manual

and semi-automated processes, depending

on where the transaction originated.”

Continual process improvementBy removing multiple systems and migrating

reconciliations into the shared centre,

Santander can measure its performance

more effectively and analyse where breaks

occur in particular transaction types,

business lines or branches. Valverde says

the bank is in a stronger position to measure

its exception management performance to

better understand where issues occur and

analyse where the service centre can add

greater value to its users.

“When we talk to various groups within

Santander to explain the centre’s benefits, the

ability to reduce risk through more effective

exception management always gets the most

interest,” she adds. “No one wants to spend

more time than is necessary to handle

growing exception volumes as their business

grows. We can demonstrate how those rates

can be improved by moving to TLM and

benefiting from the best-practices we’re

developing within the reconciliations centre.”

Santander is still evolving the service centre,

moving existing Corona users from its

Spanish and Portuguese business units and

examining other units and transaction types

that could be migrated.

“With SmartStream’s knowledgeable

consultants integrated into our team, we

are confident that the relationship between

both companies will continue to bear fruit,”

says Valverde “We were very impressed by

SmartStream’s passion, their vision for

TLM and how that will benefit Santander

long-term as we continue to develop the

shared service centre.”

17NewsMatch

[The shared centre gives us a best-practice reconciliationservice in a standardised and centralised model. Thatenables us to define the processes for different types ofreconciliations while having the flexibility to adapt to local or business-specific requirements.

Type here

Consistency, control & compliance –optimising General Ledger reconciliations

General Ledger reconciliations

General Ledger (GL) reconciliations form a critical business control function and yet for many organisations remain a manually intensive, fragmented task.SmartStream spoke to UK-based insurers Norwich Union and Prudential to discuss the benefits of automation.

18

Ben Wood | Financial Systems, Norwich Union

Chris Pallister | Finance TLM Technical Authority, Norwich Union

Steve Sharman | Finance Manager – Systems, Prudential

Russell Hatton | Senior Business Consultant, SmartStream

What are the biggest issues around GL reconciliations?Russell Hatton | Overall it’s a lack of

consistency due to an over reliance on

manually-intensive processes and a

fragmented infrastructure using Excel and

Access databases. When volumes start to

rise it impacts closure at month-end,

quarterly and year-end. There’s also an

issue around controls required for

Sarbanes-Oxley compliance as managers –

those legally responsible for signing off

accounts – lack visibility into the accuracy

or status of account reconciliations.

Steve Sharman | As a result of the number

and complexity of the systems there were

a number of different reconciliation tools

used and no consistent control standard or

methodology employed. The knock-on

effect of multiple tools is it prevents firms

from reducing overall staff costs, inflates

training costs and causes difficulties trying

to provide cover for unplanned absences.

Further they do not provide a secure or

robust environment for critical controls.

Chris Pallister | It’s a question of process.

We had multiple teams performing

reconciliations and multiple people within

those teams responsible for them, which

meant there was no standard approach. We

also became reliant on individuals within

those teams who were experts on what might

be causing a particular exception or could

second guess and reason for a mis-match.

The timeliness of reconciliations in order

to meet reporting deadlines and Service

Level Agreements (SLA) was critical.

Without visibility into outstanding items we

couldn’t re-direct resources to fix the issue

and we’d then be into the next monthly

cycle. Getting down to an exception level

was crucial to understanding what the issues

are and see if there was any missing data.

How does automation overcomethese issues?Russell Hatton | Automation enables

firms to support much higher transaction

volumes, while also making the close

cycle more efficient. Advanced matching

capabilities achieve the highest match rates

and ease of configuring match rules

enables firms to introduce continuous

process improvement.

Ben Wood | We’re currently feeding in

around four million entries a month into

TLM Reconciliations. That simply

wouldn’t have been possible using Excel

and manual processing. And with volumes

rising we wanted a solution that could

introduce operational best-practice.

Steve Sharman | The ability to monitor

and review status of all reconciliations and

early warning of issues were definitely

uppermost in our minds. And of course

with that level of automation you’re

looking at cost saving opportunities and

the flexibility to offshore work.

NewsMatch 19

What are the business drivers for automating the process?Steve Sharman | Our GL reconciliations

are high volume, complex to manage and

control and a high resource overhead for

the company. We are constantly exploring

opportunities to enhance current processes.

Introducing TLM Reconciliations was seen

as a way to standardise the processes and

therefore reduce cost and create a fully

auditable, location independent

reconciliation capability.

In addition to normal controls and audit

requirements the company needed to meet

Sarbanes Oxley regulations and demonstrate

effective controls are in place throughout

Finance. TLM is now a key tool in

maintaining this environment.

Chris Pallister | We wanted a solution

that was fully integrated supporting

reconciliations and exception management.

It needed to be a credible solution that was

proven to handle the volumes we were

already transacting and the expected

increase over the course of two to five

years. TLM is installed in some of the most

demanding banking environments,

so we knew that it could meet our

business requirements.

What are the benefits thatautomation brings to the GLreconciliation process?Russell Hatton | Automation creates

standardised and repeatable processes

through a common workflow-based tool.

Reconciliations are more efficient, helping

to reduce the cost per transaction and

overall operational cost, while also reducing

operational risk. The back office team’s

productivity is increased through the

introduction of a proactive, exceptions-based

process ensuring exception items are

efficiently prioritised and assigned for

swift resolution.

Chris Pallister | We’ve created a consistent

approach that demonstrates to the auditors

that we have systems and controls in place

to efficiently reconcile our books. We’ve

also improved the integrity of our

reconciliations by building rules around

how reconciliations should be performed

regardless of the user, team or location.

Ben Wood | It’s changed the emphasis of

reconciliations, enabling us to become

more proactive. Our staff are now

concentrating on the exception items and

repairing those, rather than purely

reconciling data. It’s also delivering

economies of scale to the business and a

decrease in unit costs because we’re able to

reconcile a higher volume of transactions

without increasing our head count.

Steve Sharman | TLM has significantly

improved the process through its powerful

matching processes and automation,

resulting in staff reductions within the

Finance area and increased controls.

It’s also easy to monitor the effectiveness

and maintenance of reconciliations,

providing increased confidence in controls

and early warning of issues. Most of the

users have embraced the benefits of TLM

once any early resistance has been resolved.

Further, TLM has been fully endorsed by

our auditors and that enables them to

verify balance and controls easily.

20

At TCS, we are proud to say that we are efficiently managing the business of numerouscustomers in diverse areas. We constantly review our outsourcing processes, seekingimprovement in quality, control and cost. In the course of these reviews and in our day-to-day work, it became clear to us that in the financial markets there was one underlyingprocess common to the majority of back office operations – reconciliations.

In addition to the traditional reconciliation of cash and securities, there are many

other reconciliations performed – front to back office, internal accounts, three-way

reconciliations between various systems, receivables, suspense accounts – the list

is endless. It was apparent that many of these reconciliations were often

performed on an ad-hoc basis using different technologies,

spreadsheets and, in some cases, entirely by manual effort.

The staff performing these activities were often not

dedicated specifically to reconciliation tasks

and as a result the reconciliations did

not receive the attention required

to achieve a properly

controlled process.

A revolutionary utility

Executive viewpoint

N. Ganapathy SubramaniamPresident, TCS Financial Solutions

The TCS Aspire Service, powered by SmartStream’s TLMtechnology, offers cost-effective core and client-specificreconciliations through an offshore utility model, removingoperational cost and risk.

It was clear that a scalable, dedicated and on-

demand reconciliation service to encompass

all these activities would be a great benefit to

the industry and something that many firms

were already seeking. Many companies have

created internal utility-based infrastructures

but are now looking to go further and

deliver even greater economies of scale.

We were confident that we had the

infrastructure, staff experience and

capacity to manage such an undertaking,

and our next challenge was to engage with

a partner to provide a suitable platform on

which to host these operations. SmartStream’s

TLM was a perfect fit.

SmartStream is a market leader in the

provision of reconciliation systems

solutions, and its highly configurable

TLM system was ideal for the service. This

combination of the leading reconciliations

software and our capabilities makes a

compelling business case.

As one would expect, the solution can

process standard cash and securities

reconciliations. But more importantly, it can

also be configured to reconcile any data-sets;

from a single ‘on and off ’ account, through

‘one-to-one’ reconciliations to ‘one-to-many’

and ‘many-to-many’ data sets.

Matching rules can be written according to

the data sets being reconciled, enabling the

utility to achieve a high auto-match rate.

The workflow processes allow exception

items to be directly assigned for

investigation, while the flexible dashboards

provide instant access to the status or

reconciliation at any point in time.

The result is the TCS Aspire, an offshore

reconciliations processing utility. The

benefits of this new model cannot be

overestimated. A transaction can be

monitored throughout its lifecycle, from

trade to settlement date. Multi-way matching

allows a transaction to be viewed as a

whole, showing the components that

match and those that do not.

Consequently, an error can be detected

before settlement date and rectified without

cost. Duplication of effort is also dramatically

reduced as many reconciliations can be

condensed into one.

Once a customer has signed up for the

service, they will immediately see a benefit.

They will no longer have to absorb data

centre costs or need to test system upgrades.

The TCS Aspire Service also guarantees full

disaster recovery, removing the cost of BCP

(Business Continuity Plan) site maintenance

and testing from the client.

The TCS Aspire Service also offers

on-demand scalability. In a scenario of

fluctuating volumes, staff need to be

recruited quickly during spikes, but they

tend to be under-utilised during volume

troughs. We have tailored the TCS Aspire

Service so that the customer only pays for

the optimum amount of staff required.

This, combined with the overall staff

reduction that is achieved from the

consolidation of reconciliations onto a single

platform in a Centre of Excellence, reduces

costs related to resourcing dramatically.

We estimate that savings of between 20

and 40 percent may be achieved on the

overall reconciliation operation.

The TCS Aspire Service also offers the

investigation of exceptions; in short, we can

manage the entire process from beginning to

end. We ensure that the customer has instant

access to the status of exception items. This

is achieved through TLM’s break chasing

functionality, where the user may add notes

and attach files to a case. The customer can

then review the status of breaks either online

via a dashboard or through daily reports.

Our first client, Deutsche Bank, readily

embraced outsourcing and already operated

a captive centre in India. Even so, their ROI

analysis demonstrated the benefits offered by

this service, and they were quick to engage

with us to further streamline their

reconciliations processes.

The experience of working with Deutsche

Bank has led to us introducing new

reconciliation types into the service while

we are also actively working to bring new

customers on board. Falling margins and

volatile markets can test even the most

robust back offices.

The TCS Aspire Service can deliver a new

method for lowering operational costs and

risk that will constantly evolve to meet

market, instrument and regulatory needs.

[The experience of working with Deutsche Bank has led to us introducing new reconciliation types into the service while we are also actively working to bring new customers on board.

NewsMatch 21

22

Delivering unparalleledperformance

Neil VernonSenior Product Manager, SmartStream

Type hereTLM Reconciliations product focus

Neil Vernon discusses how TLM Reconciliationsis evolving to meet the scalability challenge.

NewsMatch 23

Two years ago I was in an elevator with one

of our regional directors when he asked:

“Our biggest clients need to process huge

and ever expanding volumes – how can we

solve the continuous issue of scalability?”

As with most elevator pitches, the

elevator ride was far shorter than the

subject demanded.

To begin answering the question requires

an understanding of what we mean by

scalability. We began by surveying our largest

reconciliation installations, by transaction

volume, and were told by clients that TLM

is already capable of processing their very

highest volumes.

When we probed further many of our

customers said they had lived through year-

on-year double digit growth. One customer

predicted 100% volume growth from 2008

to 2009, even after or indeed perhaps

because of the effects of the credit crunch

and market volatility.

Yet 99% of our customers – representing a

cross section of Tier 1 to Tier 3 financial

institutions – have significantly lower

volumes. Even if they were to go through

huge year on year growth it will still take a

number of years before they are processing

at the level of their super-processing peers.

So volume alone isn’t the only consideration

around performance – we also have to look

at how to continue delivering the highest

possible automated match rates. Our most

thorough customer attempts to match

records using 125 different combinations

of data before raising an exception. When

increasing volumes are combined with a

determination to extract every last possible

correct match, it results in a data and

compute intensive problem.

While powerful hardware is now widely

available, software must be designed to

take advantage of that computational power.

The best practice approach in the technology

industry to ensure that applications make

maximum use of all available hardware is

to use a ‘space based architecture’.

TLM Reconciliations is developed from the

ground-up with this architecture and will

provide our customers with the assurance

that as their volumes grow and their match

rules become ever more complex the

matching engine will scale and deliver in

excess of the throughput required.

In the course of our customer research

we also found other challenges. With the

increasingly complex financial instruments

we need to ensure the item table contains

the right balance of attributes. The tactical

response to this request could be to add a

new field for customers, keeping each one

happy in the short-term but ultimately

adding more straws to the proverbial

camel’s back.

Our approach with TLM is to allow the

matching engine to run over any database

table (more correctly ‘Universe’). As a

result customers will be able to design the

perfect structure for their matching needs.

They will also be in complete control of the

data design with no constraints on what

can be matched at the database level. Of

course, for customers not wishing to take

advantage of this level of flexibility we

will still deliver packaged reconciliations

models that reduce this complexity and

execute over the existing item table.

TLM Reconciliations is a strategic

application for many of our clients

businesses. If an outage causes it to be

unavailable then for some customers

this can quickly lead to a suspension

of business. The existing architecture

provides for Active-Passive failover, i.e. a

production system can fail over to a disaster

recovery system in a matter of minutes.

But what if a ‘matter of minutes’ is not good

enough? TLM Reconciliations will be built

on an ‘Active-Active’ failover, providing for

seamless failover with no appreciable

degradation in service.

Performance tuning and maintenance is

another element we are enhancing within

TLM. For example, we will provide a

complete management console, enabling

staff familiar with the architecture to quickly

see how the matching engine is performing

with measurements against critical resource

usage to further fine tuning the system.

TLM Reconciliations is being used to

perform real-time reconciliations. Many

of our customers can truly claim to already

reconcile a transaction across its lifecycle

seconds after each lifecycle event. The latest

developments have been designed to

provide inherent real-time capabilities.

Configuring the engine to perform

real-time reconciliations will be as easy as

performing a batch-based reconciliation

whilst still exposing all the matching

capabilities that has made the TLM

matching engine the best in class.

It would have been quite an elevator ride in

order to fully explain the scalability need

and how SmartStream is continuing to

evolve TLM Reconciliations to deliver the

performance our clients want over the next

few years. Its combination of matching

against any data, in both real-time and batch

in a true always available environment will

deliver a matching service that extends way

beyond TLM Reconciliations into all of the

TLM solutions and ultimately into our

customers architectures. This will enable

the architecture to play a central role

as a matching service inside their own

application delivering even greater

cost and risk benefits to the client.

24

Listed on the Australian Stock Exchange,Challenger is a diversified financialservices organisation with circa $45billion of assets under managementacross its three business lines.

Challenger launched a project to automate

their reconciliations processes. “The number

of mandates was growing rapidly and the

types of reconciliations we had to perform

were increasing in terms of volume and

complexity. ‘One-to-many’ and ‘many-to-

many’ matches were becoming common

place and spreadsheets couldn’t handle the

types of auto-matching coupled with the

significantly increased volumes.

We wanted to remove the risks around

the manual manipulation required in

spreadsheets to get items automatically

matched and keep the reconciliations up

to date. Eliminating the simpler, but time-

intensive, reconciliations would enable us

to focus on investigating the true breaks

and greatly reduce the time taken for our

detection controls to kick in,” says Ross

Gulliford, Technical Services Manager

at Challenger.

The aim of the project was to use

Challenger’s reconciliations staff more

effectively while managing growing

volumes. Challenger wanted to automate as

many of the reconciliation processes as

possible, while providing staff with the tools

to undertake more strategic, value-added

work, such as exception management.

“The project was dubbed Chameleon

because Chameleons are known for

adapting, and that’s what was required in

terms of streamlining and automating the

reconciliation processes,” says Gulliford.

Gary Hornery, Manager of Challenger’s

reconciliations team says the choice of

solution was made easy by the fact that

SmartStream is the market leader, both

globally and in Australia.

“Having had a previous association with

SmartStream and the SSR product I was

able to fully recommend their software,”

he adds. “We looked at six RFPs and TLM

Reconciliations was chosen because of

SmartStream’s roadmap. A major part of

the decision was based on what we could

do together today and in the future.”

With TLM selected, the first task was to

load data from multiple systems, including

the registry system and investment

management system. The first phase of the

implementation covered internal accounts

including general ledger and accounts

payable – areas that would not affect

unit pricing.

Says Hornery: “The initial release was

rolled out within a week. After this, we

analysed the TLM log-ons to pinpoint

the areas that were meant to be using the

system and weren’t then simply turned the

spreadsheets off. They were a great tactical

tool and people loved them, but we knew

we couldn’t keep using spreadsheets with

the volume growth we expected.”

As with any project, says Hornery, user

acceptance was important. “We knew

TLM would make people’s lives easier and

wanted to demonstrate it in such a way

that it would gain acceptance,” he adds.

A ‘tongue-in-cheek’ video was produced

and toy Chameleons were handed out to

highlight the project implementation.

“We wanted to release with a bang, get the

Case study

Gary HorneryReconciliations Team Manager,Challenger

Ross Gulliford Technical Services Manager, Challenger

Case study | Challenger

With reconciliation volumes and complexity increasing,Australian firm Challenger needed to automate its processes to increase risk control and deliver more scalable operations.

Managing 400%volumegrowth with ease

NewsMatch 25

name out there and have fun with it. Now

there are toy Chameleons everywhere and

there’s a great feeling that the project has

been successful and is moving forward.”

Since that first phase, TLM Reconciliations

has been implemented on more than 1,000

accounts and is processing over 66,000

transactions per month for cash alone.

Throughout implementation Challenger

has had to interact with a number of third

parties, including JPMorgan and Macquarie

Bank. “Not one client was aware of the

transition; it was seamless” says Hornery.

The numbers, says Gulliford, speak for

themselves: “Since the project started,

the number of accounts we handle has

expanded by around 400% with a similar

increase in the volume of transactions we

reconcile, so scalability and flexibility have

been fundamental to its success,” he adds.

TLM has enabled Challenger to move

forward, says Gulliford, handling the huge

increase in transactional volume with the

same number of staff. “Often a project is

approached with questions like ‘how can we

cut costs and staff?’, but we went further

realising that it could have a positive

impact on day-to-day working lives. We

sought to position ourselves so that we

could significantly increase in size without

adding additional staff. This scalability is

key to our long term goals.”

“We wanted to remove the reams of

paper, rulers and highlighters to deliver

a streamlined working environment,

improving the way people can do their

job and providing a place to learn,” adds

Hornery. “We’ve had a lot of interest

from other teams within the Challenger

Group who want their people to work

in reconciliations for cross-training,

in order to understand the business.”

The TLM installation was initially

targeted at Challenger’s Investment

Services team, but is now becoming an

enterprise wide project. Gulliford says

other parts of Challenger’s business are

asking how TLM can help them achieve

their goals and they are looking to roll it

out to other divisions enabling automation

of the full reconciliation cycle between

Challenger’s third parties, critical source

systems and general ledger. “TLM is now

our third largest software install and we

intend to use it for much more than

matching stocks and cash,” he adds. “If we

hadn’t chosen TLM, we would have been in

trouble as the spreadsheets and paper just

wouldn’t be able to handle the volumes we

are now experiencing”.

[If we hadn’t chosen TLM, we would havebeen in trouble as the spreadsheets andpaper just wouldn’t be able to handle the volumes we are now experiencing

26

Delivering automation to the buy-side

Manual and semi-automated reconciliationprocesses that could just about cope fiveyears ago are woefully inadequate today,both in their ability to scale to meet volumedemands and process these increasinglycomplex instruments.

Without intelligent business rules, these

systems can create huge volumes of

exceptions that can overwhelm even the

largest back office teams. They are then left

fire fighting rather than using their skills to

deliver customer-focused operations.

The buy-side community, so instrumental

in the growth of OTC derivatives, is now

looking to invest in automation, with the

Tabb Group estimating spends of up to

$70 million at some banks. While hedge

funds have tended to outsource transaction

processing, the buy-side still needs to

reconcile these transactions with its own

books in order to retain governance.

Duplication of effort creates riskIn today’s markets the current level of

duplication with manual processing is

unsustainable. With derivatives volumes

still rising across every contract type and

increasing instrument complexity, the

buy-side cannot afford to throw more

people at the back office, although this

is invariably what is done.

Where institutions have initiated a level of

automation, they have created multiple teams

and multiple systems creating operational

silos, making this inefficient and expensive

to maintain. This has a direct impact on the

bottom line, where visibility of cost-per-trade

is crucial.

As the front office looks to trade new

exotic instruments, organisations are not

able to process them because the middle

and back office are not geared to cope,

thereby creating processing bottlenecks.

The length of time taken to deploy

traditional technology with ‘dumb

gateways’ is expensive and error prone.

There is a perception that derivatives

contracts differ to such a degree that it is

difficult to define normal practice. While

they are certainly more complex than many

other instrument types, every contract

contains common elements that offer

opportunities for standardisation and

automation. Without greater automation,

truly effective risk management cannot

be achieved and firms will continue to

lack the visibility and control required

into transactions.

Delivering visibility into transactionsThe perception from the buy-side is that

attempting to deliver automation for OTC

derivatives is not achievable due to the

complexity of the transactions. If any

attempt has been made to automate in this

area, it will be for either a specific sub-set

of instruments or a specific area, such as

confirmations of vanilla swaps.

This is achieved at present by bespoke

point applications covering these specific

areas and handing off the data to another

downstream system. As the business

grows, and the appetite for more exotic

/alternative instruments grows, the time

to market and to implement a new system

is incredibly long.

Mark TaylorBusiness Development Director,SmartStreamThe explosive growth in OTC derivatives transactions seen

over the last five years shows no signs of abating.

OTC derivatives processing

NewsMatch 27

OTC derivatives add further complexity due

to the unique nature of their lifecycle that

requires ongoing monitoring such as

periodic or regular payments that must be

calculated to take into account rates resetting.

There is an issue, particularly in credit

derivatives, where deals are novated.

We have seen plenty of buy-side firms

struggling to manage the novation process

with a combination of paper-based files

and spreadsheets that led to failed settlements.

Due to a lack of automation they could not

identify their counterparty and back office

teams spent time and effort tracking down

a specific instrument after multiple

novations had occurred.

While processing OTC derivatives is

undoubtedly complex there are a set of

core processes that can be automated to

deliver greater control, as there are common

elements across. By adopting a ‘layer-cake’

approach, of Validation, Affirmation/

Confirmation, Event Management and

Settlement, these horizontal stripes can be

automated as processing utilities within an

organisational structure that provides

economies of scale.

This layered approach to automation

means firms can implement new

innovative instruments, much like

adding additional blade servers into a

common architecture. By creating an

Affirmation/Confirmation processing

utility for all instrument types, with the

necessary business intelligent rules, allows

time-to-market for new instruments to

be processed in weeks rather than the

traditional months.

Firms can take this approach even further,

where these horizontal utilities cover all

traditional requirements as well, such as

equities, fixed income, FX and money

markets. This will enable a firm to

completely de-silo operationally, delivering

immense cost savings per trade due to the

removal of point solutions and greater

economies of scale.

The future of automation for the buy-sideAutomation and the drive towards greater

STP for Affirmation/Confirmation, event

management and settlement of certain

derivative instruments are becoming

mandatory. This will only increase as the

buy-side uses market infrastructures such

as SWIFT, Markit Wire, DTCC Deriv/Serv

and T-Zero, who have created a number

of services using FpML as the de facto

standard for communicating trade data.

Derivative trades that are currently low in

volume and considered exotic now will

eventually be commoditised and efficiently

processed in the future. By having utilities

in place to cover the common servicing

requirements of these new instruments,

delivers against time-to-market needs.

The advancements that ISDA has helped to

facilitate around vanilla derivatives products

has done much to aid back office processing.

However, the large volumes experienced

by the most sophisticated buy-side firms

and the increase in non-listed derivatives

business by both the boutique hedge fund

operations and larger asset managers still

require manual intervention.

With outstanding confirmations still

increasing at an alarming rate – doubling

between 2006 and 2007 – the need for greater

automation is clear. More importantly it

is also achievable, acting as a catalyst for

creating more efficient operations.

The win for the buy-side is to automate as

efficiently as possible and to understand

that these instruments can be automated

by central common servicing utilities.

This delivers both the cost per trade

reductions they are looking for in vanilla

instruments and the capability to effectively

process the more exotic versions increasingly

traded by their front office.

28

Cash management

The most significant recent change in theMiddle East took place in January thisyear with the introduction of the GulfCooperation Council (GCC) CommonMarket. This was an evolution in theintegration of the Gulf customs union,extending beyond the previous freemovement of goods and services to coverlabour, property, education and capital.

The developments in the GCC are often

compared to those in the European Union

(EU) over the last 40 years. In the EU, the

increase in the complexity of trading

networks led directly to growth in the

number of accounts under management,

in the levels of service required by

corporate customers and hence in the size

and complexity of the workload of cash

managers. The same trend is already

being seen within the GCC markets.

The Gulf economies have export rates

typically around 70%, driven largely by

oil. The success of the Common Market is

likely to depend on, and lead to, a marked

diversification in these economies. This

diversification will itself also lead to a

considerable increase in the workload on,

and opportunities for, cash managers and

the levels of service demanded.

The result of this will be to make cash

managers’ jobs more challenging, but also

more interesting, once the more mundane

work of handling the larger volumes has

been automated.

These factors create new opportunities

for banks in the area but also heighten the

risk of being left behind due to greater

competitive pressures. This change can

be a catalyst for building a stronger and

more profitable business, but demands a

commitment to a quality IT infrastructure.

The drive for new technology Automation is central to handling rising

volumes and complexities, reducing the

risk of manual entry and re-keying of

information. Crucially, it frees up

experienced and talented cash managers for

the true value-added work of investigating

exceptions to ensure service levels are

maintained and improved. With less time

spent on the menial tasks often required

by manually-intensive processing, they can

then concentrate on getting the best return

on customers’ cash and providing funds at

the best cost.

To achieve this, financial institutions in

the Middle East will need to ensure a

solid technology foundation for their

cash management operations based on

two key principles: the ability to scale to

meet greater volumes and the flexibility

to include both local and international

processing requirements.

Scalability is essential because volumes

will only grow and the solution must be

able to grow with them. A bank can then

take advantage of the continual decrease

in the cost of commodity computing

power to deliver matching growth

without exploding costs.

Institutions must look for a solution that

can fit their own IT environment and

business practices, as each customer brings

Jason TurnerProduct Manager, SmartStream

Growing cash management in the Middle EastCash management, like most areas of human endeavour, combines both unchanging guiding principles with constant change and innovation. In a dynamic area such as the Middle Eastbanks must look to the future or risk falling behind.

their own unique requirements. To ensure

that a cash management solution can be

adopted within reasonable budgets and

without undue disruption, the solution

must be amenable to integration through

rich configuration tools.

A further advantage of a truly flexible cash

management solution is the ability to deal

with variety and fit coherently around

basic principles. Some customers will

seek strict adherence to Sharia financial

principles and a solution must be able to

properly enable non-interest-based cash

management over a range of mechanisms,

perhaps Bai’ al-Inah, Mudarabah or Qard

Hassan. Given that much of the rest of the

financial world is focused on the use of

market interest rates, a solution must

combine the two options cleanly together

without confusion to enable true cross-

border cash management.

Flexibility around business rules and

workflows is critical, allowing the

introduction of new cash balance types,

new transaction types and new calculation

procedures depending on these.

Furthermore, institutions will need to

integrate the solution as simply as possible

into their internal source systems, so the

solution must map to almost any input

data format. This will ensure the solution

keeps up with constantly changing message

standards, such as the upcoming SWIFT

MX real-time cash management messages

in November 2008.

Integration with payments and ledger

systems is also essential, so outgoing

message support must also be flexible.

Finally, the solution must support visibility

into and control of the business processes,

which, given the variation in these processes,

means that it must enable institutions to

build business-specific screens, analysis

screens for managers and create reports.

If financial institutions in the region,

both local entities and the operations

of larger global players, want to ensure

future prosperity, it is essential to move

with the times.

While the pace of change in Middle

Eastern cash management is a challenge,

it also provides an opportunity to put

in place solid foundations for growth.

Central to that will be a flexible technology

that enables an institution both to align

with its guiding principles and to adapt

to an ever-changing world.

[While the pace of change in Middle Eastern cashmanagement is a challenge, it also provides an opportunity to put in place solid foundations for growth.

NewsMatch 29

30

SmartStream has partnered with Syntel to deliver a range ofconsulting and support services for its market-leading TLMproducts. This will enable financial services firms, looking toimplement new solutions that deliver more cost-effective andefficient back office operations, to gain a faster time to market.

Michigan-based Syntel is one of the world’slargest professional services organisations,with more than 12,000 skilled consultantsand IT specialists. The company has over15,000 person years of experience infinancial services, with more than half ofits revenue derived from servicing some ofthe world’s largest capital markets, bankingand insurance firms.

Keshav MurugeshChief Operating Officer, Syntel

Case Study | Syntel

Professional services

Building global networks to support business challenges

NewsMatch 31

Keshav Murugesh, Syntel’s Chief Operating

Officer explains how the company wanted

to enhance the breadth of its existing

offering and create new services.

“It was clear that in order to develop the

business further Syntel needed to offer a

suite of focused transaction processing

solutions for financial services clients,”

he says. “We made a conscious decision

that Syntel should continue to deliver on

its core strengths as a services company

rather than developing and building its

own software packages.”

As a result, Syntel began researching

potential partners within financial services

that could provide the technology expertise

and experience needed to deliver on its

strategic vision. After speaking to existing

customers, other banking and capital

markets firms and industry analysts, Syntel

identified SmartStream as a natural fit.

“Looking at who is leading the way in the

middle and back office technology space,

SmartStream was the obvious partner to

expand our footprint and provide our

customers with proven, scalable solutions,”

says Murugesh. “They are known for

providing technology that is robust,

scalable, and flexible enough to meet the

needs of our demanding global clients.”

Creating the partnershipWith an increasing number of TLM

solutions being implemented globally,

SmartStream wanted to choose a proven,

scalable and trusted partner to ensure

the best possible implementation of its

software. As part of this strategy, it met

with Syntel to discuss methods for

expanding the professional services team

and delivering new implementation

models to introduce a new set of cost-

effective service offerings to clients.

“Our experience in managing TLM

implementations meant that we knew how

to add value to SmartStream clients and

could expand this relationship further to

encompass a full professional services

offering,” explains Murugesh.

A team of consultants were trained by

SmartStream at Syntel’s 77-acre Pune

Technology Campus in India, during a

week-long workshop covering TLM

Reconciliations and TLM Corporate

Actions. SmartStream’s customers can now

access a global pool of skilled consultants

and professional services staff who are

familiar with TLM software and can assist

them in fully utilising the market-leading

technology they have installed.

Global delivery reduces time to marketCentral to the partnership is the

development of a blended global delivery

model, taking advantage of SmartStream

and Syntel’s onsite and offshore teams to

deliver flexible and scalable services.

This approach has two key benefits.

Projects can be delivered at optimal cost

because the client project team no longer

needs to be based entirely on-site. A core

team works at the client location, while

coding and testing work takes place at

one of Syntel’s global delivery centres.

“There is a clear cost advantage to using

a client-based team and a connected team

in Mumbai or Chennai,” says Murugesh.

“It gives the client the comfort of having

a project manager across the hallway and

the cost advantages of globally distributed

resources, without compromising the

quality of the finished product.”

The second benefit is providing clients

with access to a larger talent pool. Syntel

has developed a series of best practice

methodologies used at some of the largest

global financial institutions, creating a

“SWAT team” of consultants who are ready

to move from India to the customer site and

back whenever they are needed. As a result,

projects can utilise time differences to

continuously build, test and refine solutions.

“This blended global delivery approach is

a proven and scalable methodology that

delivers true value to the end customer,”

Murugesh explains. “For clients this

approach means a lower project cost and

more efficient resourcing, delivering a faster

time to market. Our deep experience in

capital markets and financial services gives

us an understanding of what customers

want and expect, and we have the skills

and knowledge to deliver high quality,

high value services.”

Developing new opportunitiesWith transaction volumes continuing to

accelerate and instrument complexity

increasing, SmartStream’s clients want to

ensure their middle and back offices are

as efficient as possible. To help overcome

these operational challenges, Syntel and

SmartStream are examining opportunities

to expand the relationship beyond

professional services to include new

products and solutions, and provide

additional services.

“The SmartStream partnership is a

constantly evolving relationship, and we

are now looking to see where we can add

further value,” says Murugesh. “The market

is changing and clients are focusing on core

competencies, and we intend to meet that

demand by leveraging our skills to deliver

additional value.”

Partner Program

SmartStream and our partners createand build compelling solutions andservices that enable our customers to gain operational advantage.

We recognise a partner’s expertise,and how and where it complementsSmartStream’s vision to ensuretogether we can build meaningfuland stronger strategic partnerships.By leveraging our complementaryskills and experience we can delivergreater efficiency to the transactionlifecycle for every type of organisation.

SmartStream has created a PartnerProgram to invest in strategicrelationships and create an ecosystemthat delivers innovation and value to existing and new clients.

To learn more please visit:www.smartstream-stp.com/partners

The path to derivatives automation

Are firms doing enough to monitortheir risk exposures in the middleand back office? Steve Miller | No they’re not and the

inherent problems in post-trade processing

of OTCs have been well-known for some

time. Most firms don’t know what their

exposures are. This is one of the

fundamental issues because trades can be

novated and the exposure shifts silently

from one counterparty to another.

Sean Sprackling | All too often financial

organisations focus on the calculation

of investment risk to the detriment of

operational risk exposures. Industry

participants now realise that operational

efficiency and other risk mitigating factors

such as collateral management

are as important a focus as daily VaR

calculations and stress testing.

Where do the weakest links lie?Grant Cooper | The weakest link is the

lack of integrated architecture, or at least

architecture that can understand the

whole suite of products. So there’s a lot of

duplication of work in getting both front

and back office systems (if one exists) in

synch. The operations teams who manage

the process are also often under-skilled

in these products, leaving more scope

for errors.

Sean Sprackling | The weakest links in

gaining an enterprise wide view of a firm’s

risk profile are, firstly, ensuring that each

derivative is independently priced in a

timely and accurate fashion. Secondly,

it’s also in being able to incorporate

that valuation in a form that is useful

to management. Often this may mean

presenting data at a number of levels –

individual positions, trading strategy,

portfolio and enterprise wide.

Is the buy-side significantly behindthe sell-side in terms of copingwith the processing of complex and structured products?Steve Miller | Sell-side firms have

historically made much wider use of

derivative instruments. That said, it usually

means that they have ploughed large

amounts of money into building bespoke,

in-house solutions that are often not

flexible or future-proofed enough to cope

with the diversity of demands now placed

on them.

Sean Sprackling | It’s a myth to think that

the sell-side has it all sown up as the spike

in outstanding confirmations last summer

proved. The difference is the buy-side has

just started its journey down the road of

full automation.

Grant Cooper | I’d say the buy-side is

currently anywhere between five and

nine years behind the sell-side in the

way that it processes derivatives.

Thought leadership

32

Front office trading strategies are increasingly constrained by the back office’s ability to process OTC derivatives and otherstructured products. SmartStream and two leading derivativesconsultancies discuss the path to greater automation and thebarriers that stand in the way.

Sean SpracklingPartner,Investment Solutions Consultants LLP

Grant CooperPartner,Capital Black

What needs to change to put STPhigher up the priority list?Sean Sprackling | Finding experienced

resources is part of the problem. People are

now starting to realise that having a fully

automated operating model for derivatives

requires significant thought and planning

to achieve.

Steve Miller | The most compelling driver

of all is competitive pressure. Buy-side firms

are losing ground where they cannot move

quickly into new markets and asset classes.

Grant Cooper | There is a larger part

which is a lack of understanding by

management of the issues, solutions

and STP possibilities.

However, as STP rates are becoming a

precursor to gaining new business it is

gaining greater management attention.

Higher rates mean new products can be

handled more easily and hence clients

are willing to invest if a firm is viewed as

able to provide better product coverage

and flexibility.

What are the barriers to STP in thederivatives area for buy-side firms?Grant Cooper | It’s cultural as they’ve

never had to scrutinise and control a

process as closely as this before. Then

there’s the fear of change because the buy-

side are not used to the cycle of change in

the same way as the sell-side. This means

solutions tend to be significantly more

conservative adding manual ‘checks’ which

in real terms add no value and just remove

any benefits that technology can provide.

Steve Miller | There are two huge operational

barriers: the continual use of faxes and firms

having spreadsheets all over the place.

Have firms merely been bolting on additional functionality to allowtheir equities systems to cope with other products? Sean Sprackling | Historically many firms

have tried to shoehorn derivatives into

their existing, equity-based systems.

This is slowly being replaced by a

realisation that selling products that

require significant derivatives volumes

requires a best-of-breed approach.

Grant Cooper | Yes they have and its not

the way to do it. Traditional equities

systems are completely the wrong toolset

to drive a strategic solution for derivatives.

Are firms taking a long-term view or is it a case of trying tomanage/overcome current issues?Steve Miller | The front office will always

attract the lion’s share of investment, and

in the middle and back office it will usually

be a case of plugging the gaps for least cost

as opposed to grand strategic vision.

Grant Cooper | The problem most asset

managers have is that they struggle to

comprehend the current processing nuances

of derivative products and so the future

products are just too exotic to contemplate.

It comes back to outlook; where a bank

would look at the next 10 years of products,

an asset manager struggles to get past 18

months of product development.

33

Steve MillerSenior Product Manager, SmartStream

NewsMatch

34

Case study

VUB Banka, the second largest bank inSlovakia, is a subsidiary of Italy’s IntesaSanpaolo and has witnessed substantialgrowth over the last five years with assetsrising by 10% year-on-year. This has beendue, in part, to the introduction of newdistribution channels that has led tohigher volumes, accelerated profits andgreater profitability.

The bank has quickly gained a reputation as

one of the fastest growing and most efficient

banks in Europe. As part of its expansion

plans, VUB is enhancing its services across

its retail, corporate and capital markets

operations through the provision of new

and enhanced products and services.

To support its vision of becoming a key

player in Central European financial services,

VUB required scalable technology that

could meet current processing demands

and provide a foundation to take on

further volume, instruments and

currencies in the future.

VUB reconciled nostro accounts, domestic

and foreign payments, alongside various

types of internal accounts for control

purposes such as a cash deposits and

withdrawals. “We process large volumes for a

bank of our size and we were conscious that

as we continued to expand new instruments

and transactions would need to be processed

efficiently and reconciliation complexity would

increase,” explains Ivan Golian, Executive

Director IT and Operations, at VUB.

After examining potential solutions, VUB

decided to migrate to the latest version

of SmartStream’s Corona. The bank was

familiar with Corona, having used it to

successfully deliver high levels of automation

across its cash and nostro accounts.

“Migrating to the latest version of

Corona was a natural step in evolving our

operations due to its ability to reconcile

multiple instruments,” says Juraj Turek,

Project Manager at VUB. “We needed to

ensure our operations would match our

ambitions as the business expanded and we

respond to market and regulatory changes.

For example, in 2009 the Slovak market

adopts the Euro, so Corona’s ability to

already process this currency was a big

advantage. It also provided new dashboards

that simply and clearly delivered data to

end users and management.”

As part of this project, VUB also took the

opportunity to consolidate its back office

operations into a single team using Corona

at the bank’s headquarters in Bratislava.

Previously, as a result of rapid expansion,

staff in both the head office and branch

network performed reconciliations along

with other back office tasks such as

accounting and in-house finance. This

meant at any one time VUB had around

200 people with a responsibility for

reconciling transactions.

Moving its reconciliations over to Corona

has also enabled VUB to move to daily

reconciliations within its centralised team,

with staff focused on any outstanding

items that it was not possible to match

automatically. The bank now processes

close to two million transactions a day

using Corona, peaking above four million

during month-end.

Centralising reconciliations to deliver greater back office efficiencySlovakia’s VUB Banka has created a single reconciliations team using SmartStream’s Corona at its head office inBratislava, halving the number of reconciliations staff needed. This has delivered greater visibility into a critical control function, while also enabling the bank to efficiently manage its continued expansion.

NewsMatch 35

“With the new reconciliations structure

VUB now has a single team performing a

critical control function. There is a central

pool of skilled back office staff focused

purely on reconciling transactions rather

than a number of different tasks. Response

times have improved as they use the new

functionality within Corona and the daily

effort to manage reconciliations has been

reduced,” says Jiřina Moravkova, Head of

Global Reconciliation Department at VUB.

VUB’s consolidated reconciliations

team has been the catalyst for business

transformation. Branch staff can now

concentrate on delivering critical customer

service tasks rather than multiple front

and back office responsibilities. As a result,

the reconciliation team is also now more

efficient and requires fewer staff, says

Golian. “Corona has enabled us to

redesign the structure of data entering

the system, which has resulted in a more

efficient reconciliations process. This has

meant we have saved a total of 20 FTE

staff,” he adds.

However, the benefits of this single

reconciliations function go beyond

FTE savings, with VUB monitoring its

reconciliations to deliver continual

processing improvement. “The matching

improvements delivered by the latest

version of Corona have supported complex

reconciliation cases and thus more types of

accounts to be processed,” Golian explains.

“We also use Corona Investigations to

track the outstanding items, which has

contributed to improving the overall

quality of reconciliation. With more

transactional detail now processed and kept

in Corona, we can create and analyse our

transactions using Corona’s inquiries and

reports to continually improve our processes.

It has also decreased load on our other

systems, including the General Ledger.”

VUB is now looking at supporting new

instruments and reconciliation types. For

example, as the retail business continues to

expand VUB wants to create detailed debit

card reconciliations that match the details

received from card companies with the

transactions of customer accounts.

www.smartstream-stp.com

UK – Head OfficeSt Helen’s1 UndershaftLondonEC3A 8EETel +44 (0)20 7898 0600

UK – Product Centre1690 Park AvenueAztec AvenueAlmondsburyBristolBS32 4RATel +44 (0)1454 617020

Australia3 Spring StreetLevel 12Suite 5Sydney NSW 2000Tel +61 (0)2 8249 4359

Austria Vienna Twin TowerWienerbergstrasse 111100 ViennaTel +43 (0)1 313 54 0

ChinaRoom 125112th FloorBeijing Excel CenterNo.6, Wudinghou StreetXicheng DistrictBeijing, 100140 Tel +86 (10) 8800 3752

France33, rue Galilée75116 ParisTel +33 1 444355 54

GermanyAn der Welle 460322 Frankfurt am MainTel +49 (0)69 7593 8103

IndiaUnit 7, Plot 15Western IndustrialCo-Operative Estate LtdMIDCAndheri EastMumbai 400 093Tel +91 22 6641 2525

ItalyVia Annibale Caretta, 120131 MilanoTel +39 02 742 09 41

Luxembourg33 Boulevard Prince HenriL-1724 LuxembourgTel +352 26 63 48 10

Singapore 70 Anson Road#26-01 Hub Synergy Point079905 Singapore Tel +65 6 224 76 89

Spainc/ Goya, 15 - 6º drcha.28001 MadridTel +34 91 598 49 30

SwitzerlandSeefeldstrasse 69CH-8008 ZürichTel +41 (0) 43 488 37 58

United Arab EmiratesDIFCLevel 15 The Gate PO Box 125115 DubaiTel +9714 365 0303

USA – North America61 BroadwaySuite 2824NY 10006Tel +1 212 763 6500

USA – South America250 N.E. 25th StreetMiamiFlorida 33139Tel +1 212 763 6500

COPYRIGHT AND LEGAL NOTICECopyright in all published material including photographs, drawings and images in this magazine remains vested in SmartStream Technologies and third partycontributors to this magazine as appropriate. Accordingly neither the whole nor anypart of this magazine can be reproduced in any form without express prior permissionof SmartStream Technologies in which the copyright resides. Articles, opinions andletters from solicited or unsolicited third party sources appearing in this magazine do not necessarily represent the views of SmartStream Technologies. Further, whileSmartStream Technologies has taken all reasonable steps to ensure that everythingpublished is accurate it does not accept any responsibility for any errors or resultingloss or damage whatsoever caused and readers have the responsibility to thoroughlycheck these aspects for themselves.

TAKE CONTROL

Discover how you can benefit from SmartStream’s enterprise wide,real-time, Transaction Lifecycle Management (TLM®) solutions, to createmore efficient, cost effective, customer-focused and compliant operations.

Deliver greater visibility and control to the middle and back office, reducing your operational risk and cost.

Contact SmartStream today.

www.smartstream-stp.com* The Banker, July 2008

WITH MORE THAN 1,000 CLIENTS,INCLUDING 75 OF THE WORLD’STOP 100 BANKS*, WE KNOW WHAT ITTAKES TO SUPPORT THE INDUSTRY’STOP PERFORMERS.

C A S H M A N AG E M E N T

CO M P L I A N C E M A N AG E M E N T

CO R P O R AT E AC T I O N S

E XC E P T I O N MA N AG E M E N T

OTC D E R I VAT I V E S P R O C E S S I N G

RECONCILIATIONS

TRADE F INANCE

TRADE PROCESS MANAGEMENT

TREASURY CONFIRMATIONS