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ISDA Section 05 Swaps Global Operations

The document discusses the roles and organization of derivatives operations units. It describes two key functions - trade processing including recording, confirming, and settling trades, and ensuring internal controls through separation of duties and independent verification. It outlines a typical structural organization with a middle office close to traders and a back office handling documentation and processing. Some operations tasks like documentation, hedge processing, and accounting can be outsourced. Finally, it notes trends in regulation, technology, and business that impact derivatives operations.

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63 views7 pages

ISDA Section 05 Swaps Global Operations

The document discusses the roles and organization of derivatives operations units. It describes two key functions - trade processing including recording, confirming, and settling trades, and ensuring internal controls through separation of duties and independent verification. It outlines a typical structural organization with a middle office close to traders and a back office handling documentation and processing. Some operations tasks like documentation, hedge processing, and accounting can be outsourced. Finally, it notes trends in regulation, technology, and business that impact derivatives operations.

Uploaded by

swinki3
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We take content rights seriously. If you suspect this is your content, claim it here.
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' Swaps Global Operations

ISDA Presentation: June 20,2000


Heidi Coggeshall
I. GENERAL ROLES OF OPERATIONS
Derivatives Operations units perform two critical functions:

1. TRADE PROCESSING

a) Records: Enters transactions into the systems and the official books and records

b) Confirms: Agrees deal terms and other events with the counterparty

c) Settles: Handles the payment and receipt of funds or instruments

2. INTERNAL CONTROL

a) Separation of Function: lndependent checks and balances

b) External Verification: lndependent review of market data, assumptions, valuations

c) Reconciliation: lndependent monitoring of profit and loss, positions and accounting


11. STRUCTURAL ORGANIZATION OF OPERATIONS

1 .) MIDDLE VS. BACK OFFICE


VIEW A:

a) Middle Office: Close to Traders, PIL, Risk Reports, Market Data, Exotic Processing,
Other Trade Support Functions, Spreadsheets, Specialists
b) Back Office: Remote, Deal Maintenance, Confirmations, Resets, PaymenVRate
Notifications/Instructions, Official P/L, Generalists

VIEW B:

a) Documentation

b) Operations
c) Controllers/Accounting

2.) OUTSOURCING
a) Hedge Processing
b) Money Transfer
c) General Ledger
111. GENERIC OPERATIONS RESPONSIBILITIES
FUNCTION RESPONSIBILITY
1 ) Data Capture M ~ d d l eOffice Back O f i c e Account~ng
Deal T~cketRev~ewProv~demlsslng fields
Deal Entry Input to processing system
Market Data Input: Closing prices and volatility
External Verification: Comparison to observable source
Limit Monitoring: Trading, Risk and credit
Credit Exposure Calculation: Potential exposure by deal
Credit Limit Tracking: Available credit line
Static Data Maintenance: Payment Instructions, Contacts

2) Documentation
Master Agreements: Preparation and Negotiation
Confirmations: Outgoing and Incoming
Documentation Tracking: Status of outstanding
3) Processing
Daily Rate Reset Input: Floating rate, index
PayrnentIReset Notification: Advises to counterparties
Event Monitoring: Payment, fees, excercise dates
Settlement Instructions: Payment preparation/authorization
Audit Confirmations: Counterparty transaction verification
Hedge Processing: Futures, options, securities
Collateral Management: Monitor outstandings

4) Accounting
Portfolio Valuation: Mark to market
Profit and Loss Preparation: Change in value
Profit and Loss Analysis: Actual vs. estimate
Cash Management: Cash Inlout Reconciliation
General Ledger Entry: Financial Accounting
0

111. ORGANIZATIONAL CHART

RISK MANAGEMENT
OPERATIONS

BACK OFFICE MIDDLE OFFICE ACCOUNTING

[Key: Not Front Office]


11. STRUCTURAL ISSUES

v
1 .) Functional vs. Product

2.) Special Processing vs. Standard Operations

3.) Local vs. Regional

4.) On-site vs. Remote


1.) Regulatory Environment: More guidance, expertise, higher
expectations, focus on operational risk, restrictions decreasing

2.) Technology: More vendor systems, open architecture, global


database, multi-product, internet

3.) Business Direction: Mergers, investment bank product, credit


derivatives and other variations, strict confirm standards,
operational efficiency organizations

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