Reference Data Management & Exchange Trade Life Cycle PDF

Investment Banking Operations Module 11 Reference Data Management + Exchange Trade Life Cycle  1. Understanding Reference Data Management (RDM) 2. Role of Reference Data Management and Impact of Its Mismanagement 3. Explain Static D...

Investment Banking Operations Module 11 Reference Data Management + Exchange Trade Life Cycle  1. Understanding Reference Data Management (RDM) 2. Role of Reference Data Management and Impact of Its Mismanagement 3. Explain Static Data Sources Agenda 4. Elaborate Securities Identification Numbers 5. Types of Securities Identification Numbers 6. Instrument Set-Up 7. Investor Set-Up 8. Standing Settlement Instructions (SSIs) 9. Counterparty Identifiers 10. Other Reference Data Example 11. Hands-on - Investor Profile Creation © Copyright Intellipaat. All rights reserved. Understanding Reference Data Management (RDM) © Copyright Intellipaat. All rights reserved. Introduction to Reference Data Management (RDM) Reference data management (RDM) involves handling and maintaining reference data, which are the data elements used to categorize and classify other data in an organization. This includes data such as customer information, product codes, and geographic locations. In financial systems, reference data plays a crucial role in ensuring accuracy, consistency, and efficiency across various operations and processes. © Copyright Intellipaat. All rights reserved. Key Aspects of Reference Data Management Data Classification: Reference data helps classify and organize transactional and operational data. For example, a bank's reference data might include country codes, currency codes, and financial instrument identifiers. Data Standardization: By maintaining standardized reference data, financial systems can ensure uniformity in reporting and data analysis. This helps in avoiding discrepancies that might arise from inconsistent data formats or definitions. Data Integrity: Proper management of reference data helps maintain the accuracy and reliability of financial transactions and reports. This is critical for regulatory compliance and financial auditing. © Copyright Intellipaat. All rights reserved. Key Aspects of Reference Data Management Efficient Operations: RDM streamlines processes such as trade execution, settlement, and reporting by providing a consistent framework for data interpretation and usage. Regulatory Compliance: Financial institutions are required to adhere to various regulations that mandate accurate and consistent reporting of financial data. Effective RDM supports compliance by ensuring that reference data is up-to-date and correctly applied. Risk Management: Accurate reference data helps in assessing and managing risks by providing reliable information on entities, instruments, and market conditions. © Copyright Intellipaat. All rights reserved. Benefits of Effective Reference Data Management Enhanced Accuracy 01 02 Regulatory Compliance Operational Efficiencies 03 04 Improved Risk Management Consistent Reporting 05 06 Better Customer Service Strategic Decision Making 07 © Copyright Intellipaat. All rights reserved.  Role of Reference Data Management and Impact of Its Mismanagement © Copyright Intellipaat. All rights reserved. Reference Data Management Role in Financial Systems Transaction Processing Reporting Data Integration Reference data is essential for processing transactions correctly, as it helps in identifying and categorizing different financial instruments, counterparties, and transaction types. Customer Management Market Data © Copyright Intellipaat. All rights reserved. Reference Data Management Role in Financial Systems Transaction Processing Reporting Financial reports rely on reference data to aggregate and Data Integration analyze financial information consistently. This includes generating balance sheets, income statements, and regulatory Customer Management reports. Market Data © Copyright Intellipaat. All rights reserved. Reference Data Management Role in Financial Systems Transaction Processing Reporting Data Integration In financial systems, reference data serves as a common standard for integrating data from various sources, ensuring consistency across different platforms and systems. Customer Management Market Data © Copyright Intellipaat. All rights reserved. Reference Data Management Role in Financial Systems Transaction Processing Reporting Data Integration Reference data helps in managing customer information, such as identification details, account types, and preferences, which is crucial for personalized services and compliance. Customer Management Market Data © Copyright Intellipaat. All rights reserved. Reference Data Management Role in Financial Systems Transaction Processing Reporting Data Integration Accurate reference data is vital for interpreting market data, such as stock prices, interest rates, and exchange rates, and making informed financial decisions. Customer Management Market Data © Copyright Intellipaat. All rights reserved. Impact of Poor Reference Data on Financial Operations Inaccurate Transactions 01 02 Compliance Issues Operational Inefficiencies 03 04 Risk Management Problems Inconsistent Reporting 05 06 Customer Dissatisfaction Reputation Damage 07 © Copyright Intellipaat. All rights reserved. Explain Static Data Sources © Copyright Intellipaat. All rights reserved. Static Data Sources Static data sources refer to data repositories that contain relatively stable, non-transactional information, such as reference data, which does not change frequently. This includes data such as entity identifiers, financial instruments, and regulatory codes. Static data is crucial for maintaining consistency and accuracy in financial systems and operations. © Copyright Intellipaat. All rights reserved. Importance of Static Data Sources Static data sources ensure consistency across financial systems by providing a single, authoritative source of information for entities, instruments, and other reference data. Accurate static data is essential for correct transaction processing, reporting, and compliance. Errors in static data can lead to significant financial and operational issues. Reliable static data reduces the need for manual data entry and correction, streamlining operations and improving overall efficiency. Many regulatory frameworks require accurate and consistent reference data. Static data sources help in maintaining compliance with these regulations. Static data sources facilitate the integration of data from various systems and platforms, ensuring that different parts of an organization are aligned and working with the same set of information. © Copyright Intellipaat. All rights reserved. Key Static Data Providers: Omgeo Omgeo, now part of DTCC (Depository Trust & Clearing Corporation), provides post-trade services, including trade confirmation, matching, and settlement. It also offers a range of reference data services. Reference Data Services Omgeo’s reference data services focus on ensuring accuracy and consistency in trade processing. This includes maintaining data on financial instruments, counterparties, and settlement instructions. Importance By providing accurate and up-to-date reference data, Omgeo helps reduce errors and inefficiencies in trade processing and settlement, improving the overall accuracy and reliability of financial transactions. © Copyright Intellipaat. All rights reserved. Key Static Data Providers: SWIFT SWIFT (Society for Worldwide Interbank Financial Telecommunication) is a global financial messaging network that facilitates secure communication between financial institutions. Reference Data Services SWIFT provides reference data services through its SWIFTRef database. This includes data on financial institutions (e.g., BIC codes), currencies, and country codes. Importance SWIFTRef helps financial institutions standardize and streamline their communication and transactions by providing a reliable and comprehensive source of reference data. This reduces errors in messaging and transaction processing. © Copyright Intellipaat. All rights reserved. Key Static Data Providers: Markit (now IHS Markit) Markit, now part of IHS Markit, is a global financial information services company that provides a wide range of data, analytics, and solutions to financial markets. Reference Data Services Markit offers extensive reference data services, including data on financial instruments, entities, and pricing. It maintains a comprehensive database of financial instrument identifiers, corporate actions, and market data. Importance Markit’s reference data services support accurate pricing, valuation, and risk management by providing reliable and up-to-date information. This helps financial institutions in making informed investment decisions and managing their portfolios effectively. © Copyright Intellipaat. All rights reserved.  Elaborate Securities Identification Numbers © Copyright Intellipaat. All rights reserved. Securities Identification Numbers Securities Identification Numbers (SINs) are unique codes used to identify specific financial instruments or securities. These identifiers play a crucial role in the financial markets by ensuring accurate and efficient trading, settlement, and reporting of securities. © Copyright Intellipaat. All rights reserved. Purpose of Securities Identification Numbers SINs provide a unique identifier for each security, which helps distinguish it from other securities. This uniqueness reduces confusion and errors in trading and settlement processes. SINs offer a standardized way to reference securities, making it easier for market participants to communicate and process transactions across different systems and jurisdictions. By using SINs, financial institutions can automate and streamline operations such as trading, clearing, and settlement, which enhances overall efficiency in the financial markets. SINs help ensure accurate matching and processing of transactions by providing a reliable and consistent reference for each security. SINs are essential for accurate reporting and regulatory compliance, as they enable precise identification and tracking of securities in various reports and filings. © Copyright Intellipaat. All rights reserved.  Types of Securities Identification Numbers © Copyright Intellipaat. All rights reserved. Types of Securities Identification Numbers CUSIP (Committee on ISIN (International Uniform Securities Securities Identification Identification Number) Procedures) Types FIGI (Financial SEDOL (Stock Exchange Instrument Global Daily Official List) Identifier) © Copyright Intellipaat. All rights reserved. ISIN (International Securities Identification Number) The ISIN is a globally recognized identifier that uniquely identifies a specific security. It is used for various types of securities, including equities, bonds, and derivatives. Structure: The ISIN is a 12-character alphanumeric code. It consists of three parts: Country Code: The two-letter ISO 3166-1 alpha-2 country code where the security is issued. Security Identifier: A unique alphanumeric identifier assigned to the security by the issuer or a national numbering agency. Check Digit: A single numeric digit used for validation purposes. Example For a hypothetical U.S. stock, the ISIN might be "US0378331005," where "US" is the country code, "037833100" is the security identifier, and "5" is the check digit. © Copyright Intellipaat. All rights reserved. Committee on Uniform Securities Identification Procedures CUSIP numbers are used primarily in the United States to identify U.S. and Canadian securities. They are widely used for trading, clearing, and settlement purposes within North America. Structure: The CUSIP is a 9-character alphanumeric code. It includes: Issuer Code: The first six characters identify the issuer of the security. Issue Code: The next two characters identify the specific security issued by the issuer. Check Digit: The ninth character is a check digit used for validation. Example For a hypothetical U.S. bond, the CUSIP might be "037833100," where "037833" identifies the issuer, "10" identifies the bond issue, and the final character is a check digit. © Copyright Intellipaat. All rights reserved. SEDOL (Stock Exchange Daily Official List) SEDOL codes are used to identify securities traded on the London Stock Exchange and other UK markets. They are used for various types of securities, including equities and bonds. Structure: The SEDOL is a 7-character alphanumeric code. It includes: Identifier: A unique alphanumeric sequence assigned to the security. Check Digit: The seventh character is a check digit used for validation. Example For a hypothetical UK stock, the SEDOL might be "0263494," where "026349" is the unique identifier and "4" is the check digit. © Copyright Intellipaat. All rights reserved. FIGI (Financial Instrument Global Identifier) The FIGI is a global identifier used to identify financial instruments. It is designed to be used in conjunction with other identifiers to improve data accuracy and consistency across various systems. Structure: The FIGI is a 12-character alphanumeric code. It is designed to be issuer-agnostic and is used for a wide range of financial instruments. Example For a specific security, the FIGI might be "BBG000BLNN10," where "BBG" denotes the provider and "000BLNN10" is the unique identifier for the security. © Copyright Intellipaat. All rights reserved. Instrument Set-Up © Copyright Intellipaat. All rights reserved. Instrument Set-Up Instrument Set-Up refers to the configuration and preparation of a financial instrument within an investment banking system so that it can be offered to investors. This involves defining the instrument's characteristics (such as type, pricing, and valuation methods), ensuring regulatory compliance, setting up clearing and settlement processes, and configuring risk management protocols. It ensures that the financial instrument is ready for market distribution and ongoing monitoring. © Copyright Intellipaat. All rights reserved. Importance of Proper Instrument Set-Up Importance 1. Regulatory Compliance: Ensures adherence to legal requirements, avoiding penalties and reputational damage. 2. Accurate Pricing: Enables precise pricing and valuation, essential for fair and transparent market transactions. 3. Efficient Trading: Facilitates smooth trading and settlement, reducing errors and financial risks. 4. Risk Management: Helps in identifying and mitigating risks, protecting both the firm and investors. 5. Investor Trust: Builds confidence among investors by ensuring transparency and reliability. 6. Operational Efficiency: Streamlines processes, minimizing disruptions and manual errors. 7. Accurate Reporting: Supports reliable performance tracking and regulatory reporting. © Copyright Intellipaat. All rights reserved. Investor Set-Up © Copyright Intellipaat. All rights reserved. Investor Set-Up Investor Set-Up is the process of onboarding and configuring an investor's profile within an investment banking system, ensuring they are fully prepared to participate in investment activities. This process involves collecting and verifying the investor's personal and financial information (KYC), setting up their account, obtaining necessary legal documentation, assessing their risk tolerance, and providing access to investment platforms. It ensures that the investor complies with regulatory requirements and is aligned with suitable investment products. © Copyright Intellipaat. All rights reserved. Importance of Proper Investor Set-Up Importance 1. Targeted Capital Raising: Ensures the right investors are matched with suitable opportunities, maximizing fundraising efforts. 2. Regulatory Compliance: Adheres to KYC and accredited investor rules, preventing legal issues. 3. Risk Management: Allocates risk appropriately and guides investors in building diversified portfolios. 4. Client Relationship Management: Enables personalized advice and long-term client engagement. 5. Efficient Deal Execution: Streamlines processes and improves communication during transactions. 6. Market Reputation: Builds trust, enhances credibility, and attracts new clients. 7. Adaptability: Helps banks quickly adjust to changing market conditions. © Copyright Intellipaat. All rights reserved. Standing Settlement Instructions (SSIs) © Copyright Intellipaat. All rights reserved. Standing Settlement Instructions (SSIs) Standing Settlement Instructions (SSIs) are pre-defined instructions used to specify how trades should be settled. They provide standardized details on the settlement process for financial transactions, ensuring that trades are executed and settled efficiently and accurately. SSIs are used by financial institutions to streamline the settlement of securities trades by pre-setting the parameters for each transaction. © Copyright Intellipaat. All rights reserved. Components of SSIs Settlement Account Information Details of the accounts to which securities and cash should be 01 delivered or received, including account numbers and financial institutions. Custodian Details Information about the custodian or settlement agent responsible 02 for managing the securities and cash during the settlement process. Settlement Method The preferred method for settling transactions, such as delivery 03 versus payment (DvP), where the transfer of securities occurs simultaneously with the transfer of cash. Bank Details 04 Information on the banks involved in the settlement, including routing and intermediary bank details, if applicable. Settlement Instructions 05 Specific instructions for handling the trade, such as the type of securities to be settled, payment terms, and any special handling instructions. © Copyright Intellipaat. All rights reserved. Role of SSIs in Trade Settlements Risk Operational Regulatory Efficiency Consistency Accuracy Speed Cost Savings Reduction Streamlining Compliance © Copyright Intellipaat. All rights reserved. Counterparty Identifiers © Copyright Intellipaat. All rights reserved. Counterparty Identifiers Counterparty identifiers are unique codes or designations used to uniquely identify trading partners or counterparties in financial transactions. They play a critical role in trading and risk management by providing a standardized way to track and manage the entities involved in financial transactions. © Copyright Intellipaat. All rights reserved. Need for Counterparty Identifiers Accurate Counterparty identifiers prevent errors by ensuring accurate Identification identification in complex trading environments. They help assess the creditworthiness and risk profile of trading Risk Management partners, vital for managing counterparty risk. Trade Confirmation Identifiers ensure correct trade matching and settlement & Settlement between the right parties. Regulatory Standardized identifiers aid in meeting regulatory reporting Compliance requirements. Operational They reduce manual errors and improve efficiency in trade Efficiency processing and portfolio management. Provide a consistent reference across systems, aiding in data Data Integration aggregation and reconciliation. Crucial for tracking, auditing, and ensuring transparency in Audit & Monitoring trading activities. © Copyright Intellipaat. All rights reserved. Types of Counterparty Identifiers © Copyright Intellipaat. All rights reserved. Other Reference Data Example © Copyright Intellipaat. All rights reserved. Other Reference Data Example In addition to the primary reference data types like securities identifiers (ISIN, CUSIP) and counterparty identifiers (LEI, BIC), there are several other important reference data types that play crucial roles in financial markets. © Copyright Intellipaat. All rights reserved. Currency Codes ISO 4217 codes such as USD (U.S. Dollar), EUR (Euro), JPY (Japanese Yen). Used to standardize the identification of currencies in financial transactions, trading, and reporting. They ensure clarity and consistency when dealing with multiple currencies in international transactions. © Copyright Intellipaat. All rights reserved. Country Codes ISO 3166-1 alpha-2 codes such as US (United States), FR (France), JP (Japan). Used to identify the country of origin for various financial instruments, entities, and transactions. Important for regulatory reporting, tax calculations, and geographic segmentation of data. © Copyright Intellipaat. All rights reserved. Exchange Codes NYSE (New York Stock Exchange), LSE (London Stock Exchange), TSE (Tokyo Stock Exchange). Identify specific stock exchanges where securities are listed or traded. Useful for routing trades, checking listing statuses, and integrating with trading platforms. © Copyright Intellipaat. All rights reserved. Sector and Industry Codes GICS (Global Industry Classification Standard) codes like 10 for the Energy sector, 1510 for Integrated Oil & Gas. Used to classify companies and securities into sectors and industries. Helps in market analysis, portfolio management, and investment research. © Copyright Intellipaat. All rights reserved. Product Codes UPC (Universal Product Code) for consumer products, ISIN for financial products. Identifies specific products or categories of products. In finance, product codes help in identifying derivatives, structured products, and other complex financial instruments. © Copyright Intellipaat. All rights reserved. Corporate Actions Codes CUSIP Corporate Actions codes such as "Split," "Dividend," "Mergers and Acquisitions." Used to identify and manage corporate actions affecting securities, such as stock splits, dividends, and mergers. Essential for updating portfolios and processing transactions accurately. © Copyright Intellipaat. All rights reserved. Rating Agencies Codes Moody’s ratings (e.g., Aaa, Aa1), S&P ratings (e.g., AAA, BB+). Provide credit ratings for entities and financial instruments. Useful for assessing credit risk and making investment decisions. © Copyright Intellipaat. All rights reserved. Legal Entity Identifiers (LEIs) BBG000BLNN10, which is a unique identifier assigned to legal entities. Used globally to uniquely identify legal entities involved in financial transactions, enhancing transparency and reducing risk in financial markets. © Copyright Intellipaat. All rights reserved. Bloomberg Codes Bloomberg Ticker symbols such as MSFT US (Microsoft Corp.), AAPL US (Apple Inc.). Used to identify and track specific securities and financial instruments on Bloomberg’s platform. Helpful for real-time market data and trading. © Copyright Intellipaat. All rights reserved. Maturity and Redemption Dates Specific dates indicating when bonds or other fixed-income securities mature or are redeemable. Important for managing cash flows, investment portfolios, and interest calculations. © Copyright Intellipaat. All rights reserved. Interest Rate Benchmarks LIBOR (London Interbank Offered Rate), EURIBOR (Euro Interbank Offered Rate). Used as reference rates for pricing loans, derivatives, and other financial products. Essential for setting interest rates and managing interest rate risk. © Copyright Intellipaat. All rights reserved. Settlement Location Codes SWIFT BIC codes for settlement banks, local settlement codes. Identifies specific banks or financial institutions where securities and cash should be settled. Crucial for ensuring correct settlement of transactions. © Copyright Intellipaat. All rights reserved. Tax Identification Codes TIN (Tax Identification Number), VAT (Value Added Tax) numbers. Used for tax reporting and compliance. Helps in managing tax obligations and ensuring accurate tax calculations for transactions. © Copyright Intellipaat. All rights reserved. Dividend Payment Codes Example: Codes indicating dividend types such as “Cash Dividend,” “Stock Dividend.” Used to process and track dividend payments and distributions. Important for updating investor accounts and managing cash flows. © Copyright Intellipaat. 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