There are many different trade and position books of record within an investment management firm, each with its own purpose and it is essential to understand what these are; how they are updated and by whom; how and when they should be reconciled and importantly when they should be correct. This understanding is key to the firm’s IT architecture and operating model.
Understanding the difference between the Investment Book of Record (IBOR) and the Accounting Book of Record (ABOR) is increasingly important when firms outsource parts of their business to third parties as these parties may take on responsibility for one or both of these books. As data is received from the outsource provider it is necessary to make a distinction between data originating from the IBOR or ABOR and thus what it should be used for and what it should not be used for.
There are usually two other books of record to be aware of; the Custody or Settlement Book of Record (SBOR) and the Trading Book of Record (TBOR).
As expected there is a significant amount of interaction between each of these books; they all have records of trades (albeit not all have every trade) and record of the positions they generate (albeit in different statuses). Each record is designed for a specific purpose and requires different functionality of the system that supports it.
The Investment Book of Record
In an optimised operating model the IBOR is maintained by the middle office; the operations department of an investment manager. It is typically at the core of the Investment Accounting system (c.f. the Fund Accounting system, see later) and has multiple purposes, too many to cover here, but principally it is used as a consolidation point for all intraday trades, transactions and income; is used as the basis for investment accounting, future cash and position projections as well providing a firm-wide view as a basis for risk and performance. In comparison the full TBOR record is often distributed across multiple order management systems with each system providing a consistent trading record per ‘desk’. It is unusual (and arguably unnecessary) for the TBOR to include all intraday transactions e.g. custodian-initiated FX transactions.
Accuracy
While the aim with every record is to maintain it as accurately as possible the operating model that supports the IBOR is designed to ensure that it is correct, including prices, at the start of the day (and sometimes the end of the day too). This is because the IBOR is classically used as the population source for the TBOR within the order management systems; a so-called ‘flush-and-fill’ methodology. Compare this with the ABOR. A firm may have multiple ABORs with different Third-Party Administrators according to jurisdiction, fund type or fund structure. An ABOR is designed to be correct on a fund by fund basis at the NAV-point of each fund so that an accurate NAV can be struck. That is, an ABOR may be correct at noon, 2pm and 5pm UK time if the firm has funds with these NAV points. Another of the firm’s TPAs may be accounting for a Hong Kong fund range with a NAV point of 5pm HKT. To reiterate this point the IBOR and ABOR are reconcilably correct at different times of the day and use different price points.
Design
The separation of each book of record and the associated contents, accuracy and operating model supporting each book is by design and tailored to its function and audience. Not understanding this difference leads to data management and operating model challenges.
Note: This opinion piece was first published by Knadel Limited prior to the Catalyst-Sionic merger
