Future Proofing Your Data Environment from Custody Transition
Jason Warlond, Curium’s Head of Business Development, APAC, looks at data management options to ensure a smooth custody transition:
Custodian transitions have tended to be relatively infrequent in the Australian market. This is due to custodian retention rates and review periods typically being in the order of 3-5 years.
However, this relatively static environment is beginning to change. With Fund mergers picking up pace (a desirable outcome according to APRA and several other industry voices), Custody transitions will only increase. This may be the smaller fund adopting the custodian of the larger fund or potentially the merger being the catalyst for a custody tender of the new, merged entity.
Curium Data Systems Limited (CDSL) often observes that Custody data is taken verbatim in the Custodian’s supplied format (usually CSV files) and then integrated directly to the Fund Manager’s systems. As an example, the Custodian’s daily “positions” file is used directly to integrate to multiple line of business applications such as PMS/OMS, performance, unit pricing, data warehouse, reconciliation, BI etc.
It means a myriad of point to point solutions and a replication of translation logic to downstream systems. It is also worth considering how Custodian data files can differ from one Custodian to another:
- Format – The obvious one. There will be a difference in the properties
- Types – A property may have the same meaning (e.g. Security Type or Transaction Type) but different values. For example, an “equity” security type will have different codes across different custodians
- Coding structures – Portfolio Codes, Asset codes etc. For example, some may use 4 chars, some may use 6 chars
- The number and composition of files – is cash movements in the transaction file or separate etc.? Are outstanding settlements included in the positions?
- Granularity – Particularly relating to positions, are they at holding or almost parcel based for some assets?
- Integration technology – typically CSV over SFTP. But may be Excel, XML, Json or API (or even mail)
- This point to point model becomes a barrier to custody transition as the Custodian data format, naming and coding conventions can become entrenched in Fund Manager systems and integration work. It is expensive to change as the integration effort to downstream systems needs to be multiplied many times over, including development, testing and change control.
But there is a relatively easy solution, and one that has many other benefits. The implementation of a central data hub and single source of truth ensures that downstream systems are protected from a change in the Custodian (or other data providers or other point to point solutions for that matter). There are a number of benefits and opportunities from adopting a hub-and-spoke model including:
1) An opportunity to adopt your own nomenclature and classifications that are Custodian agnostic. This can include:
- Coding structures – Security / Transaction / Fund / Portfolio etc.
- Data Granularity – including outstanding settlements, effective exposure, and multi-leg consideration
2) The ability to isolate integration to downstream systems from changes to service providers.
- New data sources are integrated into the hub once and once only. Integration to downstream systems need not be impacted.
- Custody data ingestion, cleansing and quality control need only be performed once, greatly reducing operational effort day to day as well as integration risk and effort.
3) The ability to centralise data management functions, providing the Data Management team with the capability to perform their tasks over the central hub, having trust in the data that is going to downstream systems.
4) Maintain data standards that are custodian agnostic and thus future proofing any future custodian transitions. It may also ensure more agility with custodian selection.
CDSL has an established and proven set of Best Practice principles and methodologies that have been applied with its implementations, including custody transitions. These ensure that the client’s data standards are custodian agnostic and any future custodian transitions can be achieved faster, more cost effectively and with less risk.
With a global client base of FUMs in the US$Trillions and implementations that include one of the largest custody transitions here in Australia, we understand Investment Data Management. And of course, you do not have to wait for a custody transition to implement a best practice data management solution.
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