Overdue Trades
Currently, there is a mismatch between Forward Trades with remaining balance passing maturity dates and how it’s reported across BOS, Quantum, and Netsuite systems. The Netsuite and Quantum information is matching, but the information on BOS is not. Providing the overdue balance will provide the auditors with the correct information and avoid manual calculations that may lead to inaccurate results.
Problem Description
A trade is overdue when it passed its maturity date, and there is still an available balance on the trade. After maturity, the amount left in a Forward Trade is currently not being reported within Money on Account BOS reports and the Client Balance BOS Ledger views. The reason for this is that overdue forwards does not create any debit/credit money movement entries on the client's currency accounts that are used to build the mentioned BOS report and ledger view.
The money on account BOS reports are on-demand summarized balance reports for all clients within a specific timeframe, regularly requested and used by auditors. The format of these reports is CSV files. The Client Balance BOS Ledger views are summarized displays for more-or-less the same information (client balances info within a timeframe). There are two specific reports/ledgers that are impacted by this issue:
- the "Money on account report - Trades" generated daily and on-demand via BOS ( examples below)
- the "Pending trades (Credit/Debit)"(Client Balance ledger).
The information is used by auditors that periodically compare:
- overdue reports generated both from BOS information and from Netsuite
- the Client Ledger in BOS
The "Money on Account - Trade" report includes the actual trade balance of all currency accounts of all clients. This report is automatically generated daily and can also be manually generated on the BOS interface, as shown in the following image:
"Money on Account - Trades" - BOS screenshot
The report produces a CSV file that is attached to an email. A sample of this report is demonstrated in the following image:
"Money on Account - Trades" - report sample
In addition to the "Money on Account - Trades" report, the balance left on a Forward Trade is also not considered for the calculation of the balances displayed on "Pending trades (Credit/Debit)." A sample of this is shown in the following image:
"Balance's Ledger - Sample
Background
Currently, there's a mismatch between the information reported by BOS, Quantum, and Netsuite systems. The information provided by BOS is inconsistent with the other two systems, due to the balance left in an overdue forward not being considered for the calculations, because it doesn't create a money movement entry.
An example of an overdue trade is shown in the following image.
"Overdue Forward Trade - example
In the example, a Window Forward Trade is created on 01/01, for a total of 3000 GBP and with a maturity date of 25/01. The client requested two Drawdowns before the maturity date of the trade. However, after the maturity date, the trade still had a balance of 1500 GBP remaining, and for this reason, it is considered overdue. Eventually, support would contact the client to decide what to do with the remaining balance of the trade. In the example, a Drawdown for the remaining balance was created, and the trade closed.
Due to the future IPO, having mismatching figures in the reports will affect the company's audits. The changes proposed on this blueprint are to make the information match across all three systems.
Solution
We propose a tactical solution for this task because the strategic architecture for Treasury is currently being defined and will be revisited along with other Treasury solutions.
The solution is to create a Drawdown for the remaining amount of a forward before it expires. This drawdown will create a money movement that will resolve the issue with the “Money on Account - Trades” report in addition to the BOS Trade Ledger.
A BOS periodic task will be responsible for creating the Drawdowns for the Forward Trades. The following will be considered for the automatic Drawdown creation:
- The task will be scheduled to run at regular time intervals that align with each client's timezone, handling daylight savings.
- Unless “Automatic funds from balance(AFFB)” is deactivated for a specific client, the Drawdown will be automatically funded at maturity date[ done to avoid manual recon process]. In case the AFFB is deactivated for a specific client, the Drawdown will need to be manually funded by client.
- The Drawdown will be created two days before the maturity date of the forward. The reason for the two days is to give the client time to fund the Drawdown ( or cancel/sell back/roll the trade). Creating the Drawdown on the maturity day would not give the client a reasonable time to react.
- The amount of the Drawdown should be equal to the balance that was not withdrawn from the forward.
- In case of a failure to create a Drawdown, a notification will be raised, so the problem can be fixed by trade support before the forward expires. The diagram below demonstrate the possible points of failure and when support will be notified.
"Automatic Creation of Drawdowns for Overdue Forward Trades - Process Diagram
Due to the different time zones between the countries where Ebury conducts transactions, the Drawdowns need to be created considering the timezone of each client’s branch, otherwise the Drawdowns could be created before the 2 days intended maturity date. The Drawdowns will be created at 11a.m for each time zone.
Additionally, there’re automatic email reminders for forwards that are sent to the client. The text for the reminder sent at -7 days [from the due date] will need to be reviewed, to notify the client that a Drawdown will be automatically created in case no action is taken by the client. The reminder sent at -2 days needs to be eliminated, in case there’s any.
A health check over the task will be created, as any failures running the task needs to be detected as soon as it happens, because any delay to run this task would cause forward trades being overdue and this could affect the “Money on Account - Trades” report and client’s trades ledger.
Alternatives
Update the report generated within BOS at the end of the month
The “Money on Account - Trades” report currently ignores the overdue amount in Forward Trades to calculate the balances for each client’s currency account. The data for calculating the overdue trades amount can be obtained by filtering the forward trades for which the status is not closed and the final value date is lower than the current date. This approach was declined before, because it would not tackle the real problem.
Create a new report using data by data
Creating a new report would not affect BOS and safeguarding would be impacting only if deciding to follow the figures of the new report. The new report would mirror the logic implemented within Quantum. This approach would not fix the BOS Trade ledger, and the external auditors possibly would find an issue with this.
Update BOS Trade ledger
Currently, when a forward is overdue, it does not display the remaining amount in the BOS trade ledger. By adding an entrance in the trade ledger for the remaining of the forward amount, the system would be mirroring Quantum current logic. More details about this solution can be found at the "Overdue Trades high level document" linked on References section
Caveats
This proposed approach will:
- Add risk to the client relationship because it automatically funds a Drawdown.
- Increase workload of Trade Support in the scenario the client wants to roll or similar (the Drawdown must be canceled)
- When the Drawdown is created for the full amount of the forward, the margin call is released back to the client, if the client won’t pay the Drawdown we will find ourselves without the margin call amount. This will be considered as a separated task, to be tackled on ticket TFT-3613. The solution proposed on this RFC can not go live without TFT-3613 being release to production.
- The solution proposed on this RFC does not consider synthetic trades, that will be address in another RFC.
Operation
The workload would increase in case the clients wants to roll or sellback the trade, as the Drawdown will need to be canceled.
Security Impact
N/A
Performance Impact
The task that will create the Drawdowns needs to be performant, in order to not impact the performance of the tasks.
Developer Impact
N/A
Data Consumer Impact
- The "Money On Account - Trades" report will include balances for overdue forward trades (excluding synthetics). It is unnecessary to update the SQL or the report code, as it will simply capture these balances from the credit/debit movements from the created drawdown. This will have a direct impact on:
- Client money calculation (Regulatory) - the funds needs to be protected
- TMS BOS recon project (treasury) - the overdue forward balance is calculated to reconcile the total client balances. Once the solution proposed on this RFC is released, it is necessary to ensure that the overdue balance is updated to only include synthetics forward trades.
- End of month ledgers (treasury/finance) - The report needs to be updated to calculate the overdue balance just for synthetics
Deployment
N/A
Dependencies
N/A