Financial and energy market participants are being challenged with a one-two punch of increased regulatory requirements and stringent budget constraints.
This is particularly true in relation to pre and post-trade documentation, which is inherently manual and lacks control.
“A lot of the regulations, especially Dodd-Frank and Emir, have to do with providing trade documentation in a much reduced time frame which is causing headaches,” said Kevin Thorogood, global head of capital markets at Thunderhead.com, which automates trade documentation for capital markets. “Banks have always viewed manual documentation as high risk, because a single error or overlooked clause can lead to huge losses.”
Thunderhead has created a real-time community collaboration platform to streamline the negotiation of contracts and agreements.
Called One for Capital Markets, the cloud-based platform automates trade and relationship documentation processing, and all paper transactions throughout the trading lifecycle and across all asset classes and product types.
The system was developed with advisory support from a group of representatives from the G15 investment banks as well as financial services provider Sapient Global Markets to ensure market compliance in line with U.S. Commodity Futures Trading Commission and European Securities and Markets Authority rules.
“We set up a working group with tier one banks as part of the move to One for Capital Markets,” said Thorogood. “ One of the key tenets was to launch it as a SaaS [software-as-a-service]-based industry utility, so you not only can generate documentation but have a facility for secure collaboration and negotiation with counterparties.”
Major dealers may have in excess of 10,000 counterparties with whom they have signed master agreements, and many end-users may be counterparties with multiple dealers. This creates significant levels of legal and administrative complexity and the potential for duplication of efforts as firms attempt to comply with the new rules, which promise a huge shake-up of capital markets, especially the OTC sphere.
Although the direct impact of the business conduct rules is on swap dealers and major swap participants, counterparties are also affected.
“While many organizations boast the most advanced technology and processes within the front office, none have achieved a consistent approach extending through middle and back office functions,” said Stuart Grant, solutions expert at enterprise software provider SAP, in a blog.
The International Swaps and Derivatives Association, a trade body, and financial information firm Markit last year launched a technology-based initiative that automates the information-gathering process, and provides sharing of submitted data and documents to counterparties.
Called ISDA Amend, the compliance service makes use of the Markit Document Exchange platform to facilitate the secure sharing of numerous documents with a multitude of counterparties electronically.
For Thunderhead.com, One for Capital Markets increases its penetration within the financial services vertical.
“The collaborative technology we’ve introduced has moved us into different areas within banks,” said Thorogood. “We are seeing more activity in the front and middle offices, whether they need to negotiate master agreements and understand terms and conditions prior to a trade. It’s no longer just in the back office.”
