Across most users, ourselves included, traditional risk reporting in RightAngle is seen as lacking. While the application does offer standard reports for risk exposure and mark-to-market, many reporting capabilities such as PnL explained/PnL attribution and the ability to see PnL reported over time (beyond the current month) are not available out of the box. Or, worse yet, they are but the reports are highly inaccurate. There are also many frustrations around how and why data appears within the existing reports and how to properly troubleshoot them.
For some time, the vendor has messaged that the risk architecture would be restructured. Given the nature of investments in product and the time that has passed, it is safe to say there is little reason to hold out hope that these improvements will occur. Despite all of this, barring the accuracy of the data, the underlying data in risk can be used for more meaningful reporting. The issue is how you properly access that data and present it in a meaningful way for you to understand your current exposures and your PnL over time.
Let’s Talk About Data
First, reporting is meaningless unless the underlying data is accurate and timely. We have all repeated the common phrase: “garbage in, garbage out.” So, what are some key tips to ensuring your data is correct?
Trade Entry – Determine the correct controls for who is responsible for entering, managing, and reconciling trades. Things change rapidly, and it is important to be proactive in the market, but one should not neglect mirroring real-life activities in C/ETRM systems. Sometimes we find that it can be more beneficial for traders to delegate trade entry to another qualified person to relieve competing demands on traders and to ensure that trade entry is a priority considering a trader’s main priority should be market engagement and management.
Trade Reconciliation – Even if a trader delegates trade entry to someone else within the organization, it is important that the trader agrees with the reported positions. If you start with an inaccurate position, then there is no way to have an accurate PnL, irrespective of platform.
Trade Pricing & Valuation – Are you the company who finds all of their trade price entry errors at accounting settlement? This should never be a fallback for reconciliation. Users should perform due diligence for validating trade entry at the time of execution and then comparing trade valuation to market pricing. This comparison will help catch any outlier scenarios where trades are priced well above or below the market. It is still impossible to stop all trade entry errors from being discovered at the late time of settlement, but by being attentive, one can certainly reduce those errors to a minimum.
Obligation Management – Depending on the type of trade, the position and value does not stay stagnant. The position(s) on the trade will most likely be modified for scheduling purposes. Whether a trade is split into batches or a trade is reduced or increased in volume due to what is actually moved or ticketed.
The Impact of Managing Obligations
Here are some examples of why it is so important that you are managing your obligations in RightAngle. For now, this article will focus on concepts and in Part 2 of this series, more will be covered on how to see these changes in reports.
If you are not comfortable looking at Transfer Maintenance or Search Transfers, then now is the time to invest in advancing your knowledge. All physical positions that feed into risk originate from transfers and you should be familiar with the reporting and the different states of a transfer even if you are not a scheduler.
You may be asking “why are there so many different volumes on this report and what do they all mean?” For physical positions, RightAngle relies on the concept of BAQ or “best available quantity” (sometimes also referred to as BAV – best available volume). This means that RightAngle is always trying to show the best available volumes on the transfer and their state and pushes those positions to risk.
Let’s clarify the volumes or quantities you will see on the transfer:
- Sched Ob Qty – The original obligation per the trade for that period. It can be modified in transfer maintenance by the scheduler.
- Tot Vol – The total volume per the transfer (aka transfer quantity). This is the anticipated/forecasted volume. It may or may not be equal to the obligation quantity as the scheduler may have modified the obligation during scheduling. Usually this is done to show that an obligation is split.
- Act Vol – The actual volume and will only be non-zero if that transfer is actualized.
- BAV/BAQ – The best available volume/quantity that is fed to risk positions.
- QCA (Quantity Change Action) – While it is not a quantity column, it is important to understand what QCA does to the transfer. Some clients reference QCA as the “transfer monster” because it usually creates undesirable results with bogus negative transfers if you do not have the trade settings configured properly. If you overschedule an obligation, then it will create negative transfers to get back to what it thinks BAQ is and vice versa if underscheduling.
Now that the volume columns have been clarified, it is worth discussing the most important transfer statuses and how the transfer status drives the position in risk.
|Status||Description||Tot Vol||Act Vol||BAQ|
|Planned||A transfer that is currently unscheduled but was attached to an order at some point||25,000||0||25,000|
|Matched||A scheduled transfer||25,000||0||25,000|
|Moved||A transfer that is scheduled and actualized (can be partially or full actualized)||25,000||26,000||25,000|
|Complete||(1) Never actualized (could be scheduled or unscheduled)||25,000||0||0|
|Complete||(2) Partially actualized||25,000||10,000||10,000|
|Complete||(3) Fully actualized (equal or over actualized)||25,000||26,000||26,000|
Based on the table above, you can see that “Complete” status is the only status in which BAQ uses the actual volume for positions. What happens to the variance between the actual volume and the transfer volume when you complete a transfer? It disappears from risk. This can cause many, many issues if completing the transfer was unintentional and done by mistake. Those responsible for reconciling risk, will be scratching their heads wondering why positions are no longer showing up because these positions are usually material and can significantly swing the PnL reported on that day.
How Can We Help?
Although we have barely scratched the surface on foundational data in risk, do you find that you want to understand more? We can help you demystify the complexity of risk in RightAngle through one of our training programs. Reach out to us today!