not just at instrument level, say industry experts
Financial firms are typically able to handle the impact of corporate actions on financial instruments in their portfolios, but some need to focus more on entity-level exposures, an article in Waters Technology reports.
Regulatory initiatives such as the introduction of legal entity identifiers (LEIs) and the Basel Committee on Banking Supervision (BCBS) are driving a shift from instruments to entities. This is creating a need for more sophisticated approaches to the management of corporate actions, according to Marco Sablone, director of global sales and marketing at Joss Technology, an entity data management software provider.
“The regulators want to understand, if something goes wrong, if there is stress in the system, how do you assess the risk? How do you assess the danger if something goes wrong at the entity level?” Sablone told Waters Technology. “Information about the instrument is great, but we have seen that knowing you hold a bond from issuer ABC doesn't serve any purpose, if you don't know that the issuer ultimately is Lehman Brothers.
“If you look at BCBS 239 [Principles For Effective Risk Data Aggregation and Risk Reporting, or PERDARR], for example, the regulators will ask you: what process do you have around all of your counterparty data, all of your issuer data? What data quality measures are you putting in place to ensure the data you have is accurate at the entity level?”
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