92 6
Front and back office operations
We can break this approach down by taking a look at both the front
and back office workflows in further detail.
Front office workflow
Trade authority
From the front office you need to see who is allowed to trade and
how any trading restrictions are recorded and supervised. In practice
only a few asset managers/traders or ‘executors’ will have the right to
pass orders. The front office systems should set this out quite clearly.
You ought to be able to have a list of those who have the authority
to handle the assets of the fund. You should also ensure that this has
been communicated to the broker(s).
Once you know who has the right to spend your money, you need
to understand how they work on a day-to-day basis, how they record
what they do and how that information is passed onto their team in
the middle and back office. Usually a lot of this is done electronically
using proprietary or professional software.
Trade recording
The recording of trades as they are made is crucial as it allows those
investing the fund’s money to know what their trade book looks like,
including how much available cash there is. Many a trading error has
been the result of asset managers not knowing their exact cash position
and overspending, so this is important. Proper recording will also give
the risk management team access to the data it needs to determine if the
trades are in line with the investment policy of the fund for example.
Common industry practices are still pretty rudimentary and asset
managers/traders often type orders through so-called chat systems
or through online brokerage systems specifically tailored to the cor-
responding broker or prime broker. Where a manager uses multiple
brokers, the gathering of the information will be dependent on a
number of different interfaces. The operational burden increases sub-
stantially, therefore, and this is made worse where trades are made
over the telephone and not necessarily recorded in a timely fashion.
This happens quite a bit too ...

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