IT is at heart of control

How can technology help hedge funds tighten compliance requirements such as restrictions for shorting, insider trading and investment restrictions ensuring a fund does not breach its investment mandate such as position limits, stop/loss?


This is an extended version of an article appearing in Technology Round Table: challenges ahead for the future.

Funds need to use trading systems that include centrally managed compliance functionality, including 'permissioning', order validation and other compliance tools that can address industry-wide regulatory initiatives and well as internal investment mandates, believes Harrell Smith at Portware.

“Some firms manage all their compliance requirements using their trading systems, while others incorporate other workflow applications, such as risk monitoring systems, order management systems (OMSs), restricted lists and others. The ability to easily connect to these various applications and tightly integrate them into a fund’s overall workflow process is key,” he says.

Eric Bernstein at Sophis believes strong permissioning technology solutions can ensure users in a hedge fund are doing the things that the organisation permits them to and that there are tight alert based messages going to the management chain in cases where limits are breached or come dangerously close to breaching. “Between pre-trade compliance rules, regulatory and non-regulatory, and alert/limit management this is easily accomplished with strong technology provider solutions, he says.

 “Technology solutions must be able to implement trading limits and alerts as part of the trading workflow, notes Nigel Cheetham at Thomson Reuters. “These will be built into the OMS. Before each trade is executed, the system must, in near real-time, be able to calculate the effects on the portfolio in terms of compliance guidelines, strategy or investor mandates,” concludes Cheetham.

Jon May at  Odyssey Financial Technologies believes technological solutions have a key role to play if they bring flexible tools for constructing rules and managing positions with real-time position checks, consistency, through highly performing analytic calculators based on tiered architecture and the ability for fund managers to monitor funds against rules or guidelines, through the deployment of clear and flexible user interface and/or reports.

He also thinks improved control through permissioning models that allow organisations to map their operational hierarchies to compliance rules and guidelines is another must.

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