Institutional options trading and settlement is a very flexible business process unique to US listed options market. The cost for this flexibility is the added complexity in the billing process. Many institutional clientsâ€™ are multi primed, execute through a non-clearing member who transfers the transaction to the prime of their choice involving multiple hops with a drop in fidelity of billing details. Having a manual process to track the billing through a spread sheet in comparison to book keeping in a separate system further complicates it, creating challenges for the operations/accounting teams to keep both data in sync.
Executing Brokers typically write-off between 150 to 500 basis points as slippage. CMTA Direct is a billing platform to streamline CMTA billing process realizing efficiencies with reduced slippage, accelerated receivables and resource cost in three different ways depending on the payer.
1. Excelling with spread sheet
Broker can streamline their billing process with CMTA Direct. Starting with an automatic upload of daily execution files into the system, payee can run the invoice as required typically once every month. Invoice can be one per client across Primes if they are directly paying or one invoice per prime for all its clients or even one invoice per prime per client, if that is the preference of the Prime. With an interactive spreadsheet update, any disputes/resolutions and comments will be preserved in the system with tracking of payments made. Any unpaid invoice gets aged. Executing Broker can analyze and speed up the process with interactive reports.
2. Payer portal
Trading firms like to be on top of the game resolving any issues as and when they happen. Executing Brokers can choose to keep their client up-to-date through an automated interface. Payer portal is a simple and efficient solution bringing together the Payee and Payer (Hedge fund or Prop trading) to interact and resolve their commission differences. Data can be loaded as early as T+1 for both parties to view and resolve transaction by transaction. Once a Payer signs up with MiddleLink, all their transactions across Executing Brokers participating in CMTA Direct can be accessed from a single login. Invoices can be viewed and reconciled as soon as Payee raises them through the portal eliminating any manual dependencies. A nice pre-invoice summary report across Payees would indicate the total dollar amount to be paid out in next invoice period.
Automation is the key to realize efficiencies when it comes to large amount of data. Prime Brokers bear the brunt of reconciling hundreds of monthly invoices each containing thousands of transactions. With a lack of any standard electronic format across the industry, the only way to complete the task is through a laborious manual process which makes the invoices aged typically from 2 to 4 months from trade date. In X-Connect, Primes can have their own server/desktop and auto load a transaction file on T+2. Auto reconciliation will be kicked-off by X-Connect by matching data between Executing Brokers and Prime Brokers. Any exceptions in account identifiers, trade details or commissions will be immediately displayed to all concerned parties for further action. Less than 2% of trades result in mismatch and present themselves as exception each business day, supporting a nimble and quick operation.