In the financial world, open architecture defines an institution’s ability to offer clients proprietary and external products as well as to resort to in-house and outside products, services, or providers.
If we look at open architecture through the lens of data, we quickly realise that a mix of internal and external sources and tools can be an effective way of optimising resources and improving data quality.
Middle office: The central hub of data in the investment value chain
Asset managers often have to establish specific processes for their key clients who are notably liable to impose their custodians and fund administrators of choice. They therefore have to call on several asset servicers when the situation is similar for a number of clients. This configuration is a perfect example of open architecture from a data perspective as, in this case, middle office has to process data coming from multiple sources. However, things may get very complicated for middle officers when it comes to aggregating, integrating and delivering this data in and/or via their own system, e.g. a PMS1. Managing the necessary connectivity with various providers and the integration of collected data is not always an easy feat, especially if the tools used to this end are not up to the latest industry standards.
Processing such a large amount of data and converting it into material that can be used, delivered and/or reported internally and potentially externally requires considerable resources and very specific knowledge. It is thus crucial for buy-side companies to be able to rely on a robust middle office, capable of consolidating all this data to deliver the most real-time view possible of both positions and operations. This can prove to be mission impossible if the IT tools available are not specifically designed for this purpose and if middle officers are not experienced and knowledgeable enough. Asset managers in this situation face many risks, including not having an aggregated position that considers all their operations in real time, which can have significant negative reconciliation, cash flow, accounting and reporting impacts.
Middle office data & open architecture: The way to go?
Ideally, an effective middle-office platform should be able to aggregate data from all of the asset manager’s fund administrators and custodians, provide a consolidated valued position that serves as a basis for analysis and reporting, as well as check and harmonise the NAVs by recalculating the figures provided by third-party administrators. All these essential features can only be delivered by a fully functioning open architecture system. However, such a set-up is not a given for any firm, especially if the developed tool is not natively designed for this purpose. Open architecture cannot be improvised, and the concept itself must be considered a priority from the design phase if the solutions in question are to integrate seamlessly with most existing systems.
Successfully processing data takes digital tools capable of doing the job autonomously to both streamline resources and mitigate operational risk. To this end, investors have traditionally gone down one of two main routes: building internal solutions or calling on outside providers. On the one hand, opting for proprietary tools can be a successful strategic choice but it calls for significant resources and specific expertise which unfortunately do not grow on trees. On the other hand, going for an external provider raises the eternal question of whether to outsource. For those deciding to follow this path, managing the layering of solutions and providers remains a hurdle. However, the answer may be as simple as this one word: one-stop-shop. Indeed, concentrating outside data services around a single provider should be the preferred route to facilitate the entire process by limiting the numbers of stakeholders involved, and even more so if the solution selected can be seamlessly integrated into internal systems through APIs2 and extended to the entire investment value chain.
In the end, data management is a capital challenge for buy-side companies that have embarked on a major transformation of their models. The larger and more experienced players are already well-advanced in this process, but it may be more difficult for smaller firms. For the latter, the solution may lie in an open data management set-up centred around integrated solutions and a one-stop-shop model.
Crosswise: A 100% open architecture solution
CrossWise is an integrated service offer, capitalising on a single tool managing both the upper3 and lower4 parts of the workflow, while including dealing, execution, and back-office services, thus allowing for a single application governance and position keeping. CrossWise is therefore a more robust and agile solution, as opposed to others in the market only displaying the illusion of a one-stop-shop model.
The alliance of SGSS, the second largest European asset servicer5, and SimCorp, the leading investment management software publisher in Europe6, guarantees our clients an architecture that is 100% open by nature. CrossWise is dedicated to our external clients and has not been developed to serve the strategy of internal clients, as other solutions in the market may have been.
CrossWise operates in open data architecture thanks to the very nature of SimCorp Dimension, and to the philosophy of our service offering, which doesn’t rely on pre-established patterns, be it for market access, execution or back-office providers. SimCorp Dimension allows automated interfacing with external service providers and a centralised retrieval of integrated data, ensuring audit trails and data integrity, while the SGSS teams guarantee data accuracy by reconciling data populated into CrossWise with that of external providers.
This unique approach makes CrossWise the right front-to-back outsourcing platform to meet the data flexibility needs of investment firms and to manage the multiple connections they need to maintain within their ecosystem.
1 Portfolio Management System
2 Application Programming Interfaces
3 Front office
4 Middle office
5 Source: Societe Generale Securities Services quarterly benchmark on assets under custody - data as of 31/03/2021
6 Source: https://www.simcorp.com/en/who-we-are/our-company/facts-and-figures
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