So after stepping my feet just off the “J” Train at the Broad
Street Station for my first job on Wall Street in the Summary of 1981, thirty
five years later I figure I learned a thing or two. I miss the old days when
most of the securities were in physical form. I actually help Treasury Notes in
my hand. Held them together with a “T-Pin” and walked them with an armed guard
to the FED (Federal Reserve Bank). I’m
continuing my LinkedIn Pulse first
segment in this series, “A Day In The Life Of A
Custody A/C Officer”.
Back in the day, we received so may emails we tried to read them
all, but especially the ones who subject ended with “(Read This One). Out the
first three segments I’ve done so far in this LinkedIn Pulse series, Read This
One. Risk. More of concern post the financial crisis, then pre the financial
crisis. Just a week ago today, The
New York Times Dealbook reported on how not just Corporations are going to
be held to stricter standards but executives as well. You know how deals get
struck with corporations where they get charged lesser fines (though note the
less huge) for cooperating, now they only get those lesser fines if they also “give
up” the executives and employees who are responsible. So where we thought
settlements were huge in the millions nad billions, if there is no cooperation they
will be really huge. These can avoided (sometimes not altogether) by tighter
Risk controls. There are so many flavors of risk (Financial, Reputational,
etc.). One might have thought in the past, “Oh, it’s just a loss, the company
will take the loss.”. Now, it evident someone(s) will be held directly
accountable and as we have seen, some though not directly accountable will have
to “take one for the team”.
The onus then is on each individual to take their role as being
directly responsible to mitigate risk for the firm. Everyone should always be
thinking this way, but it’s becoming more evident there is no longer a choice.
As a custody account officer servicing Investment Managers, Financial
Institutions, etc. I worked with the mindset that the onus is on me to “get in
front” of potential risk events as follows:
1. Checking
Cash Projects early in the morning to ensure that the account was properly
funded and ensure the client was aware
a. The client
could be reflecting a huge O/D at the end of the day. I need to know if they are
aware and are funding the projected O/D. If they say they have a large sale to
cover the O/D, I need to ensure that sale is matched. On Settlement day it
should be in a matched state. If not and it’s an issue with the Counter Party
(CP), then the client should be aware
2. Checking
Trade Settlement Fails for reasons, contacting the Counterparties, Initiating
Buy Ins if necessary to cover the Counterparty being short shares
3. Ensuring
Mutual Funds were moved by the required deadline for the day for proper funding
by settlement
a. Some funds
close very early and if funds are to be swept manually and the cut off is
missed those fund remain uninvested thus will not earn the fund interest which
may be very higher than the interest earned if any on idle cash.
4. Ensuring
Corporate Actions (Global & Domestic) were responded to on time, correctly
and the client was aware of their options and deadlines
a. The Client
could have elected to receive Cash on an Exchange Offer but instead the system
is showing Shares. It’s critical that the instructions given were exactly what
was acted on. It could be a major loss to the client, when trying to get cash
for those shares as the price could have changed dramatically.
5. Checking
that Redemption/Income Payments are occurring correctly on Redemption date.
It’s important when it comes to “signing your signature” which
may be authorized up to a certain amount that you question. If you name is
going on it, you need to be sure you can explain what you signed. I’m sorry,
but “Just sign it!” doesn’t cut it in our business. You need backup
documentation to support what you are signing.
It’ s important also to not just “do the work” but understand
why you are doing it. You need to understand whatever instrument you are
dealing with it. I’ve seen situations where items were being labeled as TBA’s
(To Be Announced, just before they become Pools of Mortgages), that were not in
fact TBA’s. I found out that the persons doing the work had “always done it
that way for years”. Metrics were built around this process with Reporting
(Internal & External) and it was never questions. I secured the domain name http://tbasecurity.info/ and http://mbsecurity.info/ to provide some links relative to the TBA/MBS
Process as well as Books and Videos around the subject.
As an Operational Risk Technical Analyst, I’ve produced
reporting around Vendor Risk. It’s important to know the impact of the Vendors
being used to your firm. You need to be able to access where the impact is
High, Low or Medium. If mission critical applications are being run on Vendor
Systems that are High Risk, Risk Assessments need to be done quite often.
Questions need to asked ofr the Vendor to determine what they are doing to
mitigate risk. Preliminary Risk Assessments will be key to the health of any
business.
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