Scope of Services
Clutch was called upon to assist our client, one of the world’s largest financial services institutions, comply with an investigation request from a regulator. Our client had been instructed to examine a significant volume of commercial securities trades, executed over a number of years, for signs of collusion and misconduct. Clutch’s role was to manage this process, including establishing the population all the way through to analysis and reconstruction for every applicable trade.
Context and Description
The U.S. Commodity Futures Trading Commission (CFTC), empowered by the Dodd-Frank Act, has the power to request banks to provide them with trade reconstructions within 72 hours of having made the request. European regulation such as MiFID II will enable regulators to make similar requests in the E.U. This particular trade reconstruction request was one of the first high-volume requests in the sector.
Particular issues pertaining
- Work had to be completed within strict deadlines and to a high degree of accuracy to avoid regulatory penalty
- The total amount of data corresponding to thousands of trade was considerable (15 TB) requiring a significant upfront processing and analysis effort.
- Different media types (email, audio, chat) had to be integrated seamlessly into the end reconstruction.
- The client had a legacy reconstruction process that was intensely manual – lawyers would conduct simple searches for documents related to a trade and would manually extract relevant excerpts, slowly building a trade chronology on a word document. Furthermore, multiple team members were assigned to the same trade, complicating the editing process. These issues often resulted in final chronologies that contained inconsistent outputs. This legacy process had to be replaced by a new approach developed by Clutch.
- The new process had to be repeatable at scale (based on development of a limited initial population)
In under a month, our data analytics team developed and deployed a managed process, incorporating bespoke software to allow us to deliver a report consisting of the relevant trades, fully reconstructed from across assorted media types..
Rather than compiling everything manually, Clutch analysts can seamlessly pull data from workflow platforms into our custom application using applied and developed criteria e.g. product type; price variation. They can then establish the trade population (from the vast amount of data supplied by the client) by examining trade confirmations and conversations (including audio, email, and chat data) to flag relevant information and patterns within them.
Through an automated process, incorporating advanced associative analytics these selected excerpts are then extracted and synthesized in a standardized format that depicts key decision points, players, and trade data in an intuitive and comprehensive way – essentially reconstructing each trade and evidencing the sales process.
The results of our in-house trade reconstruction tool present the output in a way that is intuitive and represents the order of events as they occurred, irrespective of media type, providing a narrative, end to end view of a trade. By reducing the manual components of the process, Clutch’s workflow produces results:
- more accurately – bolstered by our 2 stage QC process that uses technology review platforms, as well as SMEs
- better placed for scalability.
Given the efficiency of our process, we were also able to analyse the wider trade population. Again we incorporated associative analytics into this process and were able to identify and rank those key attributes correlated to misconduct and then apply them to the entire trade population. This meant the client could get ahead of the curve in their regulatory engagement.
Outcome in cost savings and time
- The client was able to meet all regulator deadlines. The entire project timeline through data culling and population definition from the original data (database of 15 TB), to delivering the chronologies for the relevant trades was 3 months.
- Clutch’s solution decreased per-trade costs by greater than 50%.
- Clutch’s solution decreased per-trade review times by greater than 50%.
Long term benefits
- The rankings provided by Clutch, as well as the system developed to obtain those rankings will enable the client to monitor their business going forward for trades that feature compliance or conduct issues.
- For future engagements, the trade reconstruction workflow and custom application created by Clutch can be leveraged quickly, as it is designed to work seamlessly with standard review workflow platforms.
- Having vetted the workflow’s results for speed, cost-efficiency, and accuracy, the client can harness the workflow rapidly to respond to future regulatory requirements.
- Given the drastic reduction in cost per trade achieved by the solution, the client can leverage the workflow even if there is no regulatory request, just to have a trade reconstructed, analysed and delivered in a highly accessible output.