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Occam’s Razor or Super-String in Post-Trade Processing?

Occam's razor (or Ockham's razor) is a principle from philosophy that presumes that if two explanations for an occurrence are presented, the simpler one is usually better. Another way of saying it is that the more assumptions you have to make, the more unlikely an explanation is. This stands in complete conflict to the more recent theories around Super-String theory or the theory that asserts that our universe is actually part of a multi universe environment and that there might be multiple versions of ourselves.

How does this relate to the Market Infrastructure problems we are trying to solve in the post-trade processing world?

As I mentioned in my previous post, the trade itself can have multiple versions of the same trade throughout the different stages of the trade and with the different participants of the post-trade processing world. What I am saying, is that today, the multi universe version of trades are prolific and seamlessly for a good reason. A trade is generated between two parties, the same trade then gets enriched or depleted in terms of data components every time that new use cases are needed or changed. One example is collateral management, the trade components that are needed are not the same as the trade details that are needed for clearing, reporting or for compression services. These multiple versions of the same trade sound good generally but cause major problems and cost in the post-trade processing world. The amount of reconciliation that is done in the industry due to these separate versions is staggering.

Here is a novel solution (rather simple), lets agree on one version of the trade and use this one “Golden Copy” for all other post-trade purposes. Also, let’s start with the right version by standardizing on the same message types and messaging protocols (such as FIX and FpML). The timing of the immutability of the trade details and the amount of data associated with the trade is crucial, the earliest possible time we can agree (possibly at the time of execution), the better. So, if we can create a full version of the trade details and get most participants in the trade from start to finish to agree on the trade details, we will have less breaks and a lower need for reconciliations.

This sound a lot like what Distributed Ledger technology will provide but…. it will take some time before we can get everyone on this chain to implement one holistic DLT solution.

Can we provide a middle ground immediate solution to provide the same functionality and cost savings before we all implement DLT? Yes!!!

Call me to find out how.



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