In my experience working with investors across the nation both small and large, there is at least one recurring theme. Their sophisticated workflows hinge on semi-automatic processes that rely in part or completely on people. I suppose that is a good thing when operator oversight is a plus, but when I get involved most of these firms have realized that they literally want to push a button and have things done as simply, quickly and reliably as possible.
Ten years ago, one of my clients experienced organic growth so rapid that it drove their firm from one that managed hundreds of millions to billions in assets in less than two years. While investment managers are known to consistently take pains to build processes that allow their businesses to scale efficiently, explosive growth can strain or disrupt established workflows.
In this case, the effect of the growth was dramatic. It demanded that certain processes be automated. One of the most important processes was related to trading foreign stocks in local currencies. The influx of trades from new business was overwhelming. Back-office employees that were already working hard needed to work even longer hours to keep pace with the incoming business.
More specifically, the firm’s back office needed to manually enter both transactions to trade currencies and the associated equity trades. In the multi-currency version of Axys, purchases and sales of foreign stocks in local currency require three transactions: two to exchange the currency and one to buy or sell the security. As a result, every purchase or sale required two additional transactions related to foreign currency exchange. They were entering three manual transactions in the trade blotter for every trade they made – even partial fills of an outstanding order required these transactions. The entries to the trade blotter were tedious, time-consuming, and a potential source of operator error; the firm knew they needed to automate them.
Understanding the Required Workflows
As part of their process, the firm waited until they got the executed FX rates from an assortment of brokers before they could enter the corresponding trades and post them in their portfolio accounting system. This backlog of trades created a slew of manual trade blotter work that ultimately had to be done after hours to make sure the firm was ready to trade the next day.
A homegrown Order Management System (OMS) populated the Axys trade blotters of the traders at the company with open trades. Those blotters were utilized to track open trades and never actually posted. Once the execution info was reported, our automation needed to create the additional transactions that back-office staff was entering manually. The workflow also required that the trade blotters for individual traders be updated to reflect that the executed trades were no longer part of the open trades. In effect, our automation needed to rewrite the traders’ blotters as well as the trade blotter of the operations employee running the app and post the latter.
Building the Prototype/v1
In a relatively quick timeframe (40 hours), we built a working prototype using Visual Basic that:
- loaded the outstanding trades from each trader’s blotter into an Access database
- created a process where outstanding trades could be selected and associated with trade execution info to generate the required trade blotter entries
- imported executed trades to the trade blotter for review and posting
- updated the open positions in the trader’s blotters
- produced reports (via Crystal Reports) detailing trades pending and actual execution info
In short, the app pulled pending transactions from their homegrown OMS and allowed users to associate foreign currency execution rates and other specifics of trade execution with specific orders to produce the necessary Axys trade blotter transactions automatically. Once the execution info was recorded, the user would exit the app, which in turn automatically updated the user’s trade blotter and the traders’ blotters.
Version 2
The next version of the app was under development for over six months and cost nearly 40k, but it met the needs of the firm. The core functionality of v1 with respect to workflow was preserved, but we added many features. In terms of the initial cost, v2 was expensive, but over a period of nearly ten years it required almost no maintenance. The multi-currency trade automation solved an immediate and urgent need when it was originally developed, and continued to save the firm hours of back office processing work every week for nearly ten years, until it was finally decommissioned in 2015 as a byproduct of the firm’s transition to Moxy and Geneva.
Though the application wasn’t cheap to build or maintain initially, it paid for itself many times over during its tenure as an integral part of the daily workflow at firm that knows the value of automation.
About the Author: Kevin Shea is the Founder and Principal 
Consultant of Quartare; Quartare provides a wide variety of technology solutions to investment advisors nationwide. For details, please visit Quartare.com, contact Kevin Shea via phone at 617-720-3400 x202 or e-mail at kshea@quartare.com.
