By: Charles Liu (cliu@mobiusriskgroup.com)

A broken, erroneous, or incorrectly recorded deal that has been processed and flowing through its life cycle is a disaster waiting to happen. The extent of that disaster depends on how long it takes for the error to be discovered. Bad data undermines the structure of effectively evaluating risk. Decisions made with misinformation inevitably produce poor results.

A typical deal cycle starts when traders execute a trade and enter it into a system. Once a deal is incorporated into the overall client portfolio, it is deemed good, and the base of information used for strategy and decision making going forward. When a broken deal enters the system, the entire portfolio can be deemed corrupt and inaccurate.

Unfortunately, erroneous trades do get past protocol and flow through the lifecycle. Because an incorrect position or data can then be used to strategize and perhaps layer on additional hedges or trades to achieve an overall plan in a complex portfolio, bad trades can be more difficult to detect. Thanks to the constraints or limitations of some systems, along with varied output, data integrity can be further compromised with each version that is used by different groups within an organization.

Discovering a bad trade usually happens when the perceived MTM of a portfolio, or an individual trade, is negative. Since it’s human nature to accept a position that is deemed correct and positive, discovering data integrity issues can be an arduous process. When realized, sometimes at maturity, the broken trade invariably ends with a negative impact. Not only monetarily, but the integrity and discredit of the inaccurate portfolio will lead to questions and scrutiny.

Mobius trade cycle begins when the trade is captured in Risknet, the proprietary CTRM/ITRM system we employ internally and that’s used externally with our clients. The system houses and generates the terms and details of the trade, then compares that to the paper confirmation. We review and independently verify the economic details before the Mobius stamp of approval. The relevant signatory for the confirmation document is then notified for execution via RiskNet. Once fully executed, the document is sent back to the counterparty to complete the trade process cycle of the deal. 

Mobius continuously monitors the data and portfolio to limit inaccuracies. A Daily and/or Monthly Trade Report details what was entered into the database during the timeframe. A daily Fair Value Report, Forecast or Settlements Report, Position, Credit and PNL Explained are all contained and generated from the RiskNet platform. Counterparty statements are reconciled and scrubbed for discrepancy and variances. This singular data set is used by Mobius internally along with our clients, and throughout their organization from C-Suite to back office.

The Mobius mid/back office team averages 20 years of experience, per staffer. Our internally developed back-office system, RiskNet, has evolved over 20 years and is today equipped with cutting-edge technology, and informed by subject matter experts. Our expertise, experience and software assure proper risk controls and processes are established and maintained. This provides confidence throughout the organization that every trade, document, data or report is accurate. Trust in data is pivotal to implementing strategy, making informed decisions and managing risk successfully in a fast-moving market, without hesitation.