What if the Euro Fails?

February 29, 2012

Recently our friends at Citisoft posted an excellent blog titled “What Happens If the Euro Fails? Potential Issues for the Investment Management Community,” which provides a framework for how operations teams at asset management firms should think about the impact of changes to the Euro.  We hear these concerns echoed across our global client base, and like Citisoft, we believe it’s prudent for asset managers to plan for this event, however unlikely. 

This past January, we conducted a study to determine how asset managers should handle a small break-up scenario of the Euro using PORTIA, where the Euro remains the currency for core Eurozone countries.  Because PORTIA was active across Europe before the original Euro conversion occurred on December 31 1998, we are fortunate to have good information and experience on the triangulation rules and conversion methods required to convert currencies both in and out of the Euro.

PORTIA is a powerful multi-currency system, and as such asset managers can change their base currencies while still retaining historical records and data.  Similar to the solution Citisoft pointed out, we accomplish this by treating the redenomination like an action taken from a corporate event.  In order to complete the redenomination, clients will still need to ensure that their upstream and downstream systems are working with redenominated data, but PORTIA is not a limiting factor here since it is very easy to import and export using PORTIA’s tools.

In the event that the Euro ceases to exist entirely, we would need to await guidance from the European Central Bank to determine how to convert assets.  PORTIA clients can access our full report on this topic through our Service Centre Portal, or clients can speak with their Client Operations Manager to learn more. 

We believe it’s important that asset managers are prepared for changes in financial markets, especially since markets are more volatile and heavily regulated than ever before.  It’s also critical that financial technology vendors are sufficiently flexible to meet the ever-changing needs of their clients.  Can your middle-to-back office solution handle major market changes, such as a Euro redenomination?  Is your system flexible enough to meet your future operational needs?

 -Denis Curtin, Senior Sales Consultant

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