As the new year kicks off, you may be looking to launch a new Order Management System (OMS) conversion project to automate workflows and improve efficiency at your firm. Without proper planning, OMS conversion projects are often accompanied with extended deadlines, budget failures, and an unpleasant front office.
One piece to consider before kicking off an OMS conversion project is the size and complexity of your existing OMS compliance rule library. Pre- and post-trade compliance rules play a big role in protecting your firm from trade errors and large fines. In 2023 alone, the SEC reported $930 million to harmed investors.
While most order management systems today have out-of-the box pre- and post-trade compliance rules, there is often a need for customization based on your firm's trading practices and investment strategies. Before rushing into a new project, consider these tips to ensure a successful OMS compliance conversion at your firm.
1. OMS Compliance Rule Library Health CheckWhat is the state of your existing compliance rule library? When converting OMS systems, firms often copy existing pre- and post-trade compliance rules into their new system. Sure, you may have implemented all necessary compliance rules into your new system, but are they accurate? Compliance is a process and fund documents are constantly being updated, amended, and revised. Before rushing into a conversion, take the time to review your investment guidelines and gather the latest pre- and post-trade compliance rule requirements. You may be asking, what is a compliance rule requirement? A compliance rule requirement is anything in the investment guidelines that can be coded in an OMS system. By taking a requirement-centric approach to your conversion, you can eliminate the probability of stale or inaccurate compliance rules being configured in your new OMS.
2. Enhancing requirements and clearly defining dictionary itemsDuring the conversion process, compliance professionals should meet with their front office to enhance and clearly define compliance rule requirements. Often, compliance requirements pulled from investment guidelines are ambiguous and can take on multiple interpretations.
Take the following investment guideline for example: “Max 15% of the portfolio market value in Mortgage-Backed Securities”
This investment guideline requirement seems straightforward, but without meeting with necessary parties and clearly defining which security types in the OMS are considered mortgage-backed securities, the rule coder will have a difficult time coding the rule. Do mortgage-backed securities (MBS) include commercial mortgage-backed securities (CMBS)? Just MBS? Should collateralized mortgage obligations (CMO’S) be included in the rule concentration bucket? Enhancing ambiguous requirements captured during your investment guideline review process with any necessary coding definitions will help facilitate accurate rule coding and prevent conversion projects from stalling out.
If you are considering a new conversion project, please contact IMP professionals to learn more about our practices and how we can assist you in configuring your OMS compliance rule library.
