Safeguarding Your Portfolio Management and Trading Infrastructure During Crisis

April 27, 2020

Safeguarding Your Portfolio Management and Trading Infrastructure During Crisis

April 27, 2020

Extreme market volatility fueled by the pandemic harkens back to the dark days of 2008. During that financial crisis, managers struggled to protect their vital infrastructures.

This time around, forward-leaning firms are taking proactive steps to evaluate their processes and systems.

Here are some critical actions they are taking:

  1. Analyzing the technology infrastructure to pinpoint technology provider latencies. The past six weeks has seen trade orders increase more than 80% on some days. Forward-leaning firms are closely monitoring their providers to evaluate how they are managing the increased trading volatility and volumes. The goal is to expose any technology gaps.
  2. Evaluating trading workflows and identifying operational processes that could be digitized. With teams mandated to work from home, activities such as processing new accounts in a paper-based environment is a nonstarter. The forced isolation of the workforce further exposes the risks and inefficiencies of manual and paper-based processes. Forward-leaning firms are identifying processes that can be replaced with more efficient digital methods.
  3. Reviewing risk control assessments (RCA) to ensure business continuity plans (BCP) are up to date. The response to the current market volatility could change the way firms operate. Asset management and brokerage communities are dealing with the reality that associates could be working remotely for an extended period. We are all confronting the reality of making decisions about ‘essential’ versus ‘non-essential’ staff and functions.  Forward-leaning firms are addressing this unavoidable task by reexamining their inherent risks and in-place controls with an end-goal of improving operational guidelines.  
  4. Testing servers to confirm that providers are adequately equipped to handle increased trading volume. Forward-leaning firms are focusing their testing on performance capacity, and their ability to quickly remediate any issues discovered during the test. This includes evaluating installed software solutions including those hosted through an outsourced vendor.
  5. Reviewing platform scenarios to determine the ability of your technology to support scenarios not considered before the COVID-19 pandemic. Forward-leaning firms are including the possibility of negative income yields which they’ve never experienced in the past but could potentially become a reality.  Here at Tegra118, we are seeing an increase in support requests for strategic capital preservation products that were less likely to be utilized during the bull market.
  6. Assessing rebalancing rules to determine if rebalancing should be done more or less frequently during these challenging times. Forward-leaning asset managers are requiring their research and analysis teams to consider and report on the implications of accelerating adjustments. They are not reacting emotionally. Some firms may decide against implementing large scheduled rebalances until markets begin to stabilize.
  7. Arming financial advisors with tools to support increased levels of client outreach during market volatility in order to provide the best advice. On a near-daily basis, Tegra118 hears from advisors who are overwhelmed with client inquiries at a level of three to five times the normal volume. In response, we’ve ramped up our support functions to assist.
  8. Reaching out to vendors for assistance with back-office processes. Forward-leaning firms are leveraging their vendor relationships to efficiently manage the tasks related to volatile trading volumes. Tegra118 has seen this with increased requests for assistance in reconciliation processes and implementing strategic model changes. Our mission has always been to help our clients operate more efficiently and that goal is more important than ever in this challenging environment.

While we remain hopeful that the broad and expansive containment efforts currently underway nationwide will blunt the spread of Covid-19, we must also be prepared and vigilant should the current lockdown extend further. And we will continue to actively partner with our clients to help them weather this storm, and move forward once this crisis ends.

Perspective - April 28, 2020

A LinkedIn Live Conversation With Cheryl Nash

A LinkedIn Live Conversation with Cheryl Nash