How We Help: Time-of-Trade, Suitability and Supervision

DIVER Advisor Case Study 2017-10-26T15:21:52+00:00
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Scenario

New and amended MSRB rules, along with a greater focus on ensuring proper supervision regarding policies and procedures, have added to the requirements of municipal market participants working with retail and non-SMMP investors in both the primary and secondary markets. Specifically, MSRB Rule G-47 requires firms and their advisors buying and selling bonds on behalf of these investors to disclose material information that is reasonably accessible at or before the time-of- trade. Rules G-19 and G-27 require, respectively, a review of the underlying health and stability of a bond to ensure it is suitable for a buyer, and an ongoing system to supervise these activities to ensure they are in line with your policies and procedures.

A global bank with a large Wealth Management group came to Lumesis for a solution that provides:

  • A fast and flexible way to access all material muni bond information reasonably accessible at or before time-of-trade.
  • A compliance and reporting engine to support their supervisory requirements and ensure compliance with MSRB and SEC Rules, FINRA exams and internal reporting requirements.
  • A platform for portfolio monitoring and tools to deliver internal and external notes and research reports.

Client Problem

Time-of-trade requirements mean collecting information about a muni security in a short time frame before a trade is executed. The manual aggregation of “material information reasonably accessible” proved to be time consuming with some clients informing us the process could take “up to 30 minutes per trade if we are to really comply with the rule.” Traders, Advisors and Wealth Managers were being hindered by information collection and did not have a simple solution in their workflow that allowed for both timely trading and MSRB compliance.
In terms of tracking and proving compliance, checking a box that a client was informed about the bond is, in the new environment, no longer adequate. The rules require documentation and proof of compliance that material information was disclosed to retail or non-SMMP clients, and a clear supervisory construct to ensure policies and procedures are adhered to.

DIVER by Lumesis Solution

DIVER Advisor is the result of collaborative input from market participants and regulators to support MSRB G-47, G-19 and G-27 rules and obligations. DIVER Advisor is integrated directly into our client’s workflow and provides:

  • Immediate access to comprehensive, CUSIP-driven, Muni Bond Reports (MBR’s) for all muni bonds.
  • A reporting engine for proof of compliance.
  • Tracking and storage of all user actions and associated bond reports.
  • Portfolio monitoring and tools to easily deliver internal and external notes and research reports.

Lumesis worked closely with the client on an implementation of Advisor that ensured consistency across all Advisors with everyone having the same process and output. Advisors were given a process that eliminated the guess work around policies and procedures and allowed them to focus on advising their clients.

Advisor is integrated directly into the bank’s trading platform and all bond reports are generated in real-time with the most up-to-date information available at the time of generation. This client firm also chose to include a process that does not allow a muni trade to be executed unless the MBR is delivered to the retail or non-SMMP client.

All activity is tracked to support regulatory needs and a robust reporting tool is easily configurable to allow for oversight at any level of the organization. Authorized users can also deliver credit notes and/or research reports to users via the platform and can perform ongoing monitoring of client holdings for rating changes, material event filings and trade activity.

After implementation and roll-out, this client is generating almost two reports, customized with their logo, for each trade. These Advisor MBR’s are shared with clients and provide the bank with a tool to deliver material information, provide suitable investment options and offer better overall service.
As a result of using a DIVER solution, this bank has:

  • Provided an efficient, firm-wide solution that allows for timely trading and compliance without compromising speed of execution or quality of service.
  • Enhanced client service.
  • Reduced risk around compliance and reporting.
  • Enabled superior service to their Advisory clients.
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