Automated Monitoring, Reporting and Escalation of Trade Limit Breaches

The Challenge

Monitoring internal limits violations for all derivatives and commodity trading activity becomes challenging once trading activities are on the rise. Timely reports are particularly important for businesses to function smoothly. Monitoring must be done for a broad array of limits such as position, value, term, duration, portfolio and others. At most, a manual report can be available for the previous day’s trades and not intraday.

Moreover, a mechanism must be set in place so that the violations done by traders must be brought to the attention of other traders and their reporting managers via notification. Capturing trades, filtering and identifying violations are difficult, eventually resulting in a lapse.

The necessary solution must: 

  • Consolidate data from respective sources efficiently
  • Centralize management of trader limits and audit of changes
  • Reports available before the start of the next business day
  • Reports should be available intraday, multiple times per day
  • Detect various limits such as position, value, term, duration, portfolio and more.
  • Report violations in a timely fashion with appropriate notifications
  • Reduce operational risk and improve resource utilization

The Solution

EPIC was the best fit for this situation and finalized to be deployed due to its ability to rapidly execute the solution with a proven implementation experience. It can easily connect to upstream and downstream data sources and model their business processes in the platform. Trades data is fetched from the appropriate source, breach conditions are checked and a violation report is generated before the start of the business day.

With a defined mechanism in place, the firm was able to address multiple violations at once:

  • Trader Limit violations: includes position, value, term, duration and portfolio limits
  • Unauthorized Trader: A report is generated when a trader having no trading authority enters a transaction into the deal capture system
  • Unauthorized product: A report is generated when a Trader transacts on a product they are not authorized to trade
  • Change in trader limits: Lists all traders defined in the system with their respective limits. This is generated when there is a change in limits, or when a new trader gets added.
  • Limit maintenance: Centralized repository of limit definitions with the flexibility to add more categories. EPIC also allows maintaining multiple datasets of the limits. This helps maintain limits for multiple applicable dates and the reports can be executed for any past date if required.
  • Consistent validation rules: Rules to detect violations are consistent and the same get applied every time as against manuals that have a chance of being different
  • Batch process: The entire process of pulling data from source till the report generation happens at a single click, and as a scheduled process
  • Prior Day report before the start of the business day: Users get the report for the previous day on emails before the start of the business day
  • Intraday violation reporting: The report can be scheduled to generate multiple times a day at specific intervals. This helps traders in taking corrective actions at run-time
  • Built-in escalation mechanism: Enables traders and their managers to get in-time notifications about the violation enabling them to take corrective action

Outcomes & Benefits

  • Summary view of violations is possible for stakeholders to take instant stock of the situation
  • Multiple violation categories and timely detections are now possible
  • Single-click report availability: Data fetching, processing and report output all in a single click
  • On-demand reporting: The report can be manually generated when needed during the day
  • Users can directly generate the report without any help
  • Reliable reports as they are system generated
  • Timely report availability at the start of the business day

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