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Trade matching in the traditional and alternative markets
Journal of Securities Operations & Custody,
3
(4),
288-297
(2011)
Abstract
Pressures from investors and regulators are accelerating the pace of convergence in traditional and alternative asset management organisations and improving standards of practice. At present, in the traditional investment management arena, managers’ and brokers’ records are generally compared on a trade-by-trade basis and custodians are authorised by the managers to settle matched transactions. In the hedge fund world, prime brokers, often serving as both trading counterparty and custodian, either settle trades without any affirmation or issue the affirmation on behalf of the manager. After tracing the historical development of these two de facto industry standards, the author comments on the role of the administrator, illustrates how the absence of trade matching increases hedge fund managers’ costs, explores why the hedge fund industry has accepted an error-prone process, and outlines a resolution.
Keywords: trade matching; hedge fund; operational risk; affirmation; failed trades
The full article is available to subscribers to the journal.
Author's Biography
Holly Miller is the founding partner of Stone House Consulting, LLC, providing strategic, operational and IT consulting services to investment managers and hedge funds. Prior to founding Stone House Consulting, Holly was Chief Operating Officer at M.D. Sass, managing US$17bn in hedge funds, private equity funds, traditional separate accounts and SMA (‘wrap’) accounts across 18 investment strategies and 15 investment management firms. During her 30- year career, she was East Coast Region Manager for Citisoft, Inc. where her clients included several of the world’s largest asset managers. Holly has also managed operations teams for Bank Julius Baer, J.& W. Seligman and Citigroup. Her understanding of all aspects of the investment management and hedge fund business from investment decision-making to sales and marketing to trade settlement to performance measurement, coupled with her seasoned project management skills, result in a powerful ability to assist clients with long-term strategic planning, evaluating outsourcing, streamlining operational processes, selecting and implementing systems, cutting costs and reducing risk. Holly is a coauthor of The Top Ten Operational Risks: A Survival Guide for Investment Management Firms and Hedge Funds (December 2010). She is a popular speaker and publishes regularly in trade publications and at http://articles.stonehouseconsulting. com.
