What is an IBOR?

January 15, 2014

Thumbnail for IBOR emailSince the financial crisis of 2007-08, financial institutions have been re-thinking their operating models to adapt to new market conditions. Investors have become more sophisticated and involved, seeking out new types of securities and investing globally to obtain alpha while managing risk. As a result, clients are demanding more transparency into their investments. Similarly, the regulatory environment over the past few years has been both intense and fluid, and regulators are now expecting financial institutions to manage risk in new ways to avoid the problems faced during the market downturn.

Much of this was precipitated by the failure of many of the technology platforms in place during the downturn. Over the prior ten-year period, trading and investment strategies evolved significantly, including a broadening of the types of investments used to generate alpha. During this evolution, many technology platforms failed to keep pace with changes in investment strategies, and during the financial crisis legacy systems struggled to value and manage securities. Many financial institutions are now investing in operations, putting in place feature-rich systems that support their investment strategies, from recordkeeping and pricing to valuation and risk management. This new type of system, which allows firms to make smarter investment decisions, is now known within the industry as an Investment Book of Records, or IBOR.

What is an IBOR?

An IBOR is a solution that helps support the investment decision-making process by providing a single view of positions, valuations and exposures; this single view is obtained by processing all the investment data of a financial institution. To do this, the system must be able to:

  • Store all of the information related to a financial institution’s investments
  • Integrate with other systems and data providers that are part of the IT ecosystem
  • Handle middle-to-back-office processing for a variety of investment strategies
  • Report information to all stakeholders in a flexible and timely manner

Capturing all of a firm’s investment information is critically important, and far more complex than it sounds. During the market downturn beginning in 2007, one of the biggest challenges facing financial institutions was valuing the wide variety of securities demanded by investors. Many firms had deployed specific systems to manage certain security types, because their legacy systems couldn’t keep pace with the proliferation of new security classes.  As a result, firms lost the ability to view holdings and positions holistically – hence the need for IBORs. Any system deployed as an IBOR must be able to handle a wide variety of securities to avoid past mistakes. This includes different security classes, globally diverse securities, securities in multiple currencies, and more.

Once information is properly captured, the system must provide powerful processing capabilities. The data provided by an IBOR is only as good as the processing capabilities that create the data. Therefore, it is critical that an IBOR support the entire investment accounting lifecycle, across all security types.

Regardless of security type, an IBOR must also provide deep capabilities to arrive at accurate valuations, including the ability to provide accounting for multiple books of business, in multiple currencies. In addition, the system should calculate performance and attribution at the security level to provide investors with actionable information, offer compliance tools to ensure positions are meeting investment rules and guidelines, and provide other middle-to-back-office functionality to ensure process integrity.

Finally, once the investment information is accurately processed, an IBOR should report on data easily, combining information from multiple systems if necessary and providing multiple views of the data to match the varying reporting requirements of the front office, investors, regulators and more.

As the investment management industry continues to become more complex and regulated, there will be more pressure on financial institutions to provide reliable, accurate and timely information throughout the investment process. The competitive landscape will compel financial institutions to seek solutions that provide a consolidated view of investment data to control accuracy and quality. As this happens, IBORs will become an essential part of the investment process.

Implementing a reliable and proven product such as SS&C PORTIA as an IBOR solution allows financial institutions to ensure the integrity and improve the quality of data through their organizations. IBOR solutions must be customized to meet the unique needs of each firm’s business, but ideally should be used as part of a broad operational ecosystem that exceeds the expectations of the front office, regulators and clients.

To learn more about what an IBOR is and what to look for in an IBOR solution click here to download a copy of our whitepaper “SS&C PORTIA: Why You Should Consider an IBOR”.

This blog post is the first in a series from SS&C PORTIA on the importance of implementing an IBOR solution.  In coming posts we will discuss a number of aspects of IBOR solutions such as, “What to look for when selecting an IBOR”, “The risk of not Implementing an IBOR” and much more.

–          Matt Bellias, Head of Strategy and Marketing

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