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An Interesting Year for the IBOR Debate

Delivering the ideal IBOR solution will require fundamental changes in way businesses operate and the way front-office trading systems are used.

A debate is underway. Should Investment Book of Records (IBOR) systems be implemented as a revolutionary platform overhaul or a set-by-step process?

IBOR systems are becoming a key operational requirement in the asset and investment management industries. The solution is intended to provide managers with a comprehensive and current view of the firm's positions to better support investment decisions.

According to Mal Cullen, managing director and head of the Americas at Eagle ACCESS, if you can solve IBOR you can solve other performance measurement and risk issues, and send better data along to outsourcers. "There's a broader business case to be made. Until recently many firms saw IBOR as a front-office need only, but it's expensive, and the data can be used to solve the rest of organizational issues, and people are beginning to realize the benefit of that."

"This is going to be more of a journey with value on the way rather than something you can just put in place," says Paul Westgate, product manager at Linedata who takes the step-by-step view. "In time, the IBOR can be a comprehensive solution to change the way firms monitor and manage their holdings and positions."

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"Scarcely a conference goes by without an panel on the benefits of IBOR. But at the moment it's not very practical," adds Westgate. By practical he means something aimed at the front-office, not a solution aimed elsewhere trying to be an IBOR, like an enhanced accounting system or beefed up front-office technology. "They talk about IBOR solutions handling all aspects of wants considered to be in the IBOR space, but that's a solution that doesn't exist today."

While some of the bigger players are looking to develop the over-arching solution, including Eagle and Linedata, Westgate says a true IBOR would require fundamental changes in way business operates and the way front-office trading systems are used. Before making any investment firms need to step back and analyze what they are looking to get out of an IBOR platform, acknowledging specific business needs and the growing regulatory demands on their data. Simply put, there needs to be room for growth.

Let IBOR be IBOR

Despite all the hype around IBOR there haven't many company announcements saying they have taken on a system. It's likely organizations are aware of problem areas they need to address, like reliable information for the front-office traders and assembling the basis for risk for performance reasons, but they probably aren't thinking in terms of IBOR's ability to address the problems - and how the rest of the enterprise can leverage that solution.

For example, fundamentally IBOR provides accurate data around a firm's positions to other systems - one single version or truth of what assets look like so traders can make better informed investment decisions. This includes timely start of day positions with potential for multiple intra-day updates for the front-office. Often, it's an accounting system that's trying to send this information to the front-office, and indeed many firms are still working to create an IBOR by building around their accounting platform.

But Cullen and Westgate agree that because its primary objective is accounting, not investment, the data is less well timed and less accurate for genuine front-office trading. So rather than try to mess around with a functional accounting system, introduce a separate and pure IBOR solution that can operate outside the accounting framework. The data then can be used to populate downstream systems including reporting for regulators.

[For more on IBOR and front-office functionality: 5 Technology Initiatives for the Buy-Side, see David Kubersky's related story.]

This leads to an interesting element of the debate about how these IBOR systems will be perceived as yet another system duplicating work done elsewhere, partially as firms drive to reduce the number of systems and move to outsource more functions. "I think in all cases the view should be that IBOR solutions are not duplicating anything," argues Westgate. "It should be the prime IBOR that should feed other systems, and it's not a shadow system which is duplicating, it has its own right. Particularly, it does act as good in-house independent book or records to feed the front-office and outsource to providers."

The IBOR debate should highlight the issues around creating IBOR solutions based on what firms already have in house. Soon, hopes Westgate, we will see firms recognize they are fundamentally doing different job and need different types of positions to support those needs.

"This year is going to be quite interesting for the IBOR debate, typically as things start to take shape and move forward," he concludes. "There are going to be big projects leading to big solutions, and organizations are going to be more immediate, demanding practical solutions they can deploy and get benefits from today." Becca Lipman is Senior Editor for Wall Street & Technology. She writes in-depth news articles with a focus on big data and compliance in the capital markets. She regularly meets with information technology leaders and innovators and writes about cloud computing, datacenters, ... View Full Bio

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TomP923
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TomP923,
User Rank: Apprentice
3/4/2014 | 10:25:06 PM
re: An Interesting Year for the IBOR Debate
I agree that this topic continues to be interesting. ItGs also clear that people are piling on. LetGs not merge the IBOR requirements with the rest of the firmGs enterprise investment data requirements. In the context of an asset management firmGs IBOR itGs a very specific thing (loosely portfolio management record keeping) that needs to be considered as part of a firms broader operating model strategy. Many people are combining the firmGs broader enterprise wide investment data requirements into the definition of IBOR. While there are real requirements for firm wide reporting and timely exposure analysis which should be addressed as part of a firmGs data strategy letGs not merge that into an
unobtainable set of IBOR requirements.

In our view IBOR is about the portfolio management business process data requirements for current portfolio holdings (key point is about the timing of the availability of case and security position holdings). Many accounting solution implementations are focused on the end of period accuracy requirements that are driven largely by the fund type or domicile. This is at best end of day or T+1 and in many cases monthly whereas the portfolio manager needs to know with a fair level of certainty where they stand at the start of each day and with each trading scenario (what-if or actual). This gets more interesting for firms with truly global operating models.

While more and more asset management products and funds are managed in a multi-asset class style these requirements are far from the more far reaching enterprise wide data requirements that have become part of this IBOR discussion.
IvySchmerken
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IvySchmerken,
User Rank: Author
2/28/2014 | 11:57:08 PM
re: An Interesting Year for the IBOR Debate
IBOR has become a hot topic in the industry from vendors and consultants. I haven't heard of any investment management firms saying they are implementing IBOR, though it may be going on. There seems to be a conflict about whether IBOR should be a system in its own right, or a golden copy of front office positions that feeds other systems. It would be good to know how much does it cost to build an IBOR?
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