Rehypothecation Gap Analysis

Introduction

Rehypothecation is a classic example of an investment banking product that is core to the business but often has bespoke IT systems. These systems are functional in nature but lack the analytical capability to spot Rehypothecation gaps to maximise returns on potential funding. Pomerol is able to introduce a set of tools and processes to quickly spot these opportunities and to help improve the P&L.

Challenges

1. Viewing aggregated P&L (Finance), securities depot (Operations) and compliance database at a transactional level.
2. Stale data as the data set was only available on a monthly basis.
3. Excel extracts where used as a data source.
4. Master data management – each function had a different preferred security identification method (RIC, ISIN, Sedol).

Solutions

A Database connectivity was established rather than using extracts as raw data.

A QlikView app was built to enable rapid ETL by joining the finance, operations and compliance data sources.

Golden table of security identifiers.

Benefits

Agility – Analysts were able to instantly identify current stocks, rather than historic trades, that were producing less than expected funding revenues.

Insights – The business drivers of under performance of each exception, contained in the stock depot and compliance data, could immediately be investigated as the data was associated through Qlik.

Impacts

The client identified a couple of significant, outdated operational process controls.

After the control fixes were implemented, the client had access to assets for a longer period of time thus enabling more rehypothecation and repo trades.

Annual funding opportunity cost saving of $3.1m