BornTec in Action: Audit Trail Compliance – Managing Complex Reporting Functions
Pop quiz: When it comes to functions performed in a trading or clearing operations, audit trail compliance:
- A) Makes little or no contribution to a business’s revenue line
- B) Is mandated by regulators like the CFTC
- C) Appears simple on the surface but is actually naggingly complex
- D) All of the above
Unfortunately, the answer is D.
However, the good news is that audit trail compliance, a component of CrossCheckTM from BornTec, can make this unpleasant task easy and, in the process, deliver both regulatory cover, greater operational efficiency and enhanced business insights.
Challenges with Audit Trail Compliance (ATC)
The unification of trade flow data is a persistent and often difficult component of managing compliance responsibilities. Tracking and reporting on all trading activity is a seemingly simple exercise but it winds up being very complex in a real world setting. In the derivatives world, compliance is mandated by the CFTC but enforced by the individual exchanges, e.g. CME Group or ICE.
Some of the challenges with ATC are:
- Lack of uniformity in both information provided and reporting required by and among exchanges
- Multiple ISV sources, e.g. TT, Fidessa, or CQG, that deliver what amounts to unstructured data due to a lack of consistent formatting
- Unique and non-standardized direct market access (DMA) feeds
- Changes to source files and formats that lead to incorrect or incomplete data capture
- Difficulty in tracking and accounting for missing or incorrect files in real time
- Requests for audit trail information may come a year or more after the fact: the CFTC requires that records be retained for 5 years
- Fines from exchanges for non-compliance with rules and regulations
Given the complex and diverse data challenges involved, it pays to fully understand the issues to be faced. In order to fully manage audit trail requirements, a number of steps must be incorporated:
- Data retrieval: There are a large number of data sources so it makes sense to utilize automated data retrieval via SFTP or other standardized format wherever possible.
- File validation: Begin with a check to ensure that the file received is valid and proceed to confirm that the correct structure of rows and fields is in place.
- Data normalization: the format of data varies between sources so it needs to be parsed and recorded so that it fits within required data parameters in a common schema.
- Completeness checks: Data must contain all required information but is often deficient. Consuming and comparing to drop copy data is a check to fulfill this requirement.
- Query and export: data must be accessible in order to have value so a final step is to build out functionality that allows for easy querying and export of audit trail records. This information can then be combined with other trade data to deliver unique insights into market activity.
Audit Trail Compliance in CrossCheckTM from BornTec
ATC may be an unpleasant but necessary task in trade processing but it can be efficiently handled with the right tools. The ATC solution in CrossCheckTM has a number of winning attributes.
- Completeness verification: Missing files, empty files or incomplete data are common problems that are routinely flagged and managed.
- Full data validation: Vendor code changes can be common and lead to data corruption or inconsistency with respect to exchange requirements. Our ATC module allows you to stay on top of these changes.
- Rapid Data Retrieval: Data that is stored on a file server is inaccessible to most personnel; searches take days-weeks. Our solution puts data and reports right at your fingertips.
- Format Auto Detections: Vendors often change the format of their files, making data searches and audit trail reconstructions difficult. We can readily flag discrepancies and our team stays on top of issues that are common to the industry.
On its surface, ATC is one of those “no win” functions in a clearing operation that has nothing but downside: it is a non-revenue producing task but can lead to regulatory fines if it is handled incorrectly. In reality, a complete audit trail picture can be combined with other data to enhance risk management and trading analytics, increasing insight for the enterprise. ATC from BornTec delivers on all counts.
BornTec is a Chicago-based technology solutions firm that provides tools to support surveillance, risk, compliance, and regulatory reporting functions in financial markets. Contact us for a demo of our data resilience solutions.