System Overview of Banks Global Market Business - Term Paper Example

An Insight into Banks Global Markets Business Banks operating in the global context are seemed to be under the threat of different risks which include inflation, foreign exchange risks and financial crises. Presently, banks are identified to adopt certain systems that include booking system, valuation system, sub-ledger system, settlement system, regulatory reporting system and general ledger system based on which banking operations might be conducted. These systems aid banks in recording financial transactions appropriately, which in turn assists in recognizing business performance and decision making. In this regard, banks with the assistance of the systematic approach are able to conduct banking operations successfully and sustainably. Introduction In the present scenario, the banking industry has changed in an immense manner owing to different factors that include technological innovation and international market competitions. Additionally, there are other factors that include increased disintermediation, corporate behavioral changes and deregulation in relation to financial services. Banking crisis is also accountable for changes in banking operations as well as structures. The changes are adopted by global banks with the intention of ensuring that business operations are conducted in a stabilized manner. Subsequently, global banks are identified to develop alliances with domestic as well as foreign-owned banks in order to minimize risk exposure (Hawkins & Mihaljek, n.d.). Presently, global banks in response to the changing business scenario have adopted different measures which include enhanced quantity along with quality of capital and risk coverage with the aim of ascertaining that the banking operations are conducted successfully. Moreover, global banks are identified to develop strict regime based on risk management and enhanced regulatory framework in order to manage bossiness operations for better sustainable growth. Global banking sector is developing in a rapid way. The baking sector is also identified to face critical challenges that include customer demand and increased operational costs among others. In this changing competitive business scenario, global banks are required to conduct their operations abiding by adequate financial regulations with the aim of performing business operations systematically. Correspondingly, the global market business of banks comprises different systems which include booking system, valuation system, sub-ledger system and general ledger system. Moreover, the global market business of banks is conducted in accordance with the systems so that financial transactions are maintained effectively and flexibly (The Boston Consulting Group, Inc, 2012). With these considerations, the paper is based on the topic of discussion i.e. ‘System Overview of the Global Markets Business wherein an analysis will be made regarding different systems based on which global business market operations of banks are conducted. Accordingly, the procedure of conducting market business operations are performed is evaluated with the intention of determining its significance. System Overview of Bank’s Global Market Business Global banks are exposed to different risks on the basis of which regulatory framework comprising different reforms are implemented. According to the rules of the regulatory frameworks, banks are required to follow minimum standards for better sustainability and business performance. The regulatory framework is based on certain principles which include stabilization of banking operations, reforming capital market, shadow banking and protecting customers (The Boston Consulting Group, Inc, 2012). In this regard, the banks conducting global operations are identified to adopt different systems that include booking system, valuation system, sub-ledger system, settlement system, regulatory reporting system and general ledger system with the intention of ensuing that banking operations are performed sustainably. The systems based on which global market business of banks are described hereunder: System Overview of the Global Market Business Ticketing or Booking System The banks are entrusted with the responsibility of seeking that investments made by traders are recorded. Correspondingly, ticketing or booking system is the technique of recording details about trade activities. Additionally, the system also records the place along with the time of investment transactions. The system assists both the parties involved with trading operations to possess the record of investment transaction, which is also recognized as trade ticket with the aim of having comprehensive information in relation to trading activities. Traders with the assistance of trade ticket are facilitated with the opportunity of having information in relation to short or long-term maturity and notional status of investment (Baker, 2010). Subsequently, the traders with the assistance of trade ticket or booking system are able to conduct their responsibilities of managing risks and trading operations. The booking system is an effective mean of ascertaining that trading activities are conducted with minimum error margins. Subsequently, booking system ensures that only a restricted number of individuals are granted with access facility to scrutinize trade operations with the intention of preventing security rules violation and insider trading. Contextually, the system is determined to be an appropriate mechanism with the assistance of which supervisors of trade operations are able to effective periodic review of trading operations (The Office of Compliance Inspections and Examinations, 2012). Respectively, the trade details obtained in the ticketing or booking system are transferred to risk or valuation system and settlement system. Risk or Valuation System The investments of traders are exposed to volatile market conditions owing to various threats which include exchange rate, inflation and derivatives of interest rate among others. In this purview, global banks are required to adopt different risk management measures with the intention of ascertaining that investments of traders are safeguarded for better stable banking operations. Contextually, banks have adopted different statistical along with mathematical tools which include ‘value-at-risk’ (VAR) analysis (Mehta & et. al., 2012). The risk or valuation system assists banks in ascertaining the value of risks associated with trading operations and market risks among others. Additionally, the system also aids traders in ascertaining the present value (PV) of their investments. The system will also calculate investment value through profit and loss (P&L) account in order to determine the profit or loss margin. Respectively, global banks in order to measure market and investment risks determine volatilities in relation to P&L and economic risks. In this regard, banks with the assistance of the system are able to identify different risks that might adversely affect investments. The system is an important tool based on which traders or investors are facilitated with the opportunity of having comprehensive information in relation to value of investments made. Additionally, the system has aided traders in developing better transparency as well as insights about regulatory requirements, portfolio reporting along with risk management. Furthermore, the traders are facilitated with the opportunity of managing risks effectively. The system also aids traders in having effective information through risk reports based on which traders or risk managers are able to manage their investment in an effective manner (Mehta & et. al., 2012). In this context, it has been further ascertained that the traders are facilitated with the opportunity of ensuring that trading operations are conducted with better accuracy. Moreover, the system improves the transparency of the trading operations with respect to investment value and risks identification. Subsequently, traders identifying associated trade risks are able to mitigate risks in an appropriate manner. Besides, the system provides important valuable information about investment status in the present scenario (Sapient Corporation, 2011). Moreover, the system also adopts different valuation models on the basis of which the investment products are priced or valued. Subsequently, different banks operating on a global context are identified to adopt identical ‘information technology’ (IT) architecture with the intention of pricing valuation of investment. In addition, valuation of investments with the assistance of different valuation models has assisted traders in recognizing investment prices in different market segments. Thus, the system assists traders in having a comprehensive understanding of trading activities (Mehta & et. al., 2012). Correspondingly, by calculating the PV of investments and analyzing P&L, the values and information will be forwarded to the sub-ledger system. Additionally, information in relation to PV will be disseminated to the settlement system. Settlement System Global banks in order to ensure that trade or investment operations are conducted in an appropriate manner have implemented settlement system with the intention of executing trade operations successfully. Parties involved in trade operations are required to ensure that investments are executed, booked along with confirmed in accordance with legal requirements on the part of the parties involved. Exchange of investments is made after the settlement process. Settlement system is identified as a procedure on the basis of which counterparties associated with the trading operations are required to be fulfilled their respective legal obligations. In this respect, the settlement system ensures that desired obligations are exchanged amid counterparties (Baker, 2010). The settlement system is an important segment of banks in performing their global market business in an effective manner. The system ensures that exchange operations are performed in accordance with legal obligations of the counterparties. Subsequently, global banks with the assistance of the system are able to minimize risks in relation to trade of investments and other securities on the basis of their valuations. Additionally, the system assists banks in conducting trade operation in a timely manner for better execution of investment operations (M.C.D.R Inc, 2008). On confirmation, credits along with debits are ascertained, which depicts purchase as well as sale of financial instruments or securities. In this regard, the system signifies that at the completion of the transaction phase, a party transfers financial instruments to another party with respect to certain value, which includes financial asset or cash. Contextually, the system aids in having a better monitoring services in relation to date as well as account type on the basis of which trades are settled. The system assists traders in having comprehensive information in relation to account balances on a regular basis. Respectively, global banks facilitate traders in settling their trades or investments in a legal manner in order to ensure that banking operations are conducted efficiently. Moreover, the obtaining information in relation to PV will calculate trading valuation and the amount required for the completion of trade transactions (Iberclear, 2014). Sub-Ledger System In the present volatile market scenario, global banks in order to ensure that banking operations are conducted in an effective manner adopt effective accounting techniques. In this regard, global banks performing accounting operations with the assistance of sub-ledger system are facilitated with the opportunity of analyzing as well as interpreting financial information in relation to P&L and its attributions in an accurate manner. Moreover, the system also aids global banks in preparing appropriate balance sheet signifying accuracy in relation to liabilities as well as assists of banks. The system has been adopted by banks with the aim of calculating financial information in an integrated manner. Besides, the system integrates different operations that include financial and trading activities in order to ensure that accounting information is measured appropriately. The system assists banks in managing financial data in accordance with accounting rules, so that financial information is recorded accurately. Global banks with the assistance of the sub-ledger system are facilitated with recording as well as analyzing financial information suitably. Additionally, the system also aids banks in providing adequate information traders in relation to trade operations. The traders are also informed about the present status of their investments (Deloitte Development LLC, 2012). The sub-ledger system is convenient to setup, as it is based on systematic procedures, which are depicted hereunder: Sub ledger application Account methods builder steps: Events Sources Journal entries Journal line types Journal description Mapping sets Account deviation rules Supporting references Methods and definitions Sub-ledger accounting options in the ledgers Source: (Cameron, 2009) The sub-ledger system will assist global banks in recording financial transactions accurately. Additionally, financial transactions are recorded systematically so that trading status of investments might be generated in a time manner. The reports and records of financial transactions are used by traders as well as product controllers for different purposes that include identifying investment status, PV and investment return margin among others (Cameron, 2009). The financial information recorded in the system is forwarded to regulatory reporting system. Regulatory Reporting System (RRS) Regulatory Reporting System (RRS) is a tool with the assistance of which global banks are able to monitor as well as recognize different regulatory provisions required for disclosure of financial information in a suitable manner. Correspondingly, on the basis of disclosure requirements, banks make necessary amendments, verification, approval as well as submission of the regulatory documents. RRS is deigned uniquely for banks to regulate along with monitor financial information in an accurate manner. Additionally, the system facilities clients or trading parties the opportunity of developing ad hoc rules with the intention of conducting banking operations effectively. The clients are also able to obtain required information from the RSS database (Solutions Atlantic, Inc, 2011). Besides, RSS is identified to play an effective role in disclosing financial information in a timely along with accurate manner. Additionally, the system ascertains that disclosure of unnecessary financial information is mitigated. The system also aids in generating compliances resources owing to reduction in manual errors, processing time along with labor costs. The senior management of banks is required to codify with the requirements in relation to regulatory disclosure. The banks with the assistance of the system are facilitated in recording complex financial information suitably and efficiently. In this respect, the system with its global implementation has assisted banks in providing improved quality of data globally (Solutions Atlantic, Inc, 2011). General Ledger (GL) System The general ledger (GL) system is the most important system in the banking sectors, as global banks keep records of all financial transactions in it. The system is used for the prime purpose of financial reporting. The banks with the assistance of GL are able to formulate Balance Sheet, Income Statement and P&L Statement. Correspondingly, annual reports of banks are prepared based on the records of GL. The financial statements will aid global banks in the process of decision making. Contextually, the information that flows to the GL system is used for recording the trade and other transactions effectively. In this regard, the system is identified to be recognized as official books of banks, as it is the data warehouse of financial transactions based on which financial reports are managed as well as prepared. Subsequently, banks with the assistance of GL are facilitated with the opportunity of identifying business performance and obligations. Besides, the system is determined to be integrated with all the banking operations that are conducted on a day-to-day basis. Respectively, the system assists banks in making decisions along with formulating appropriate strategies in accordance with which banking operations are required to be conducted (Mannella, n.d.). Critical Evaluation The present market scenario has intensified with competition due to globalization, advent technologies and financial crises. Global banks in order to conduct their operations effectively are required to follow financial regulations so that risks are mitigated successfully. In this regard, banks under the pressure of financial crises are identified to adopt market-driven of client-driven approach with the aim of conducting operations with better stability as well as sustainability. The global banks are associated in conducting trading activities and in this respect, the investment operations are required to be managed effectively. Subsequently, banks are conducting their operations in accordance with risk management approach in relation to interest rates, equities, foreign exchange, commodity markets and credit so that investments are managed with better hedging options (The Boston Consulting Group, Inc, 2012). It can be comprehend from the above analysis of the different systems of banks that market operations are performed on a global basis based on these systems. It has been identified that the financial information and other statistical related banking operations are required to flow in a systematic manner with the intention of ensuring that banking operations are performed accurately and successfully. Subsequently, the banks with the assistance of the system are able to ensure that trading or investment operations are appropriately. Additionally, the system also aids banks in conducting their operations with minimum exposure towards different risks that include exchange risks, interest derivative risks and credit risks and inflation. The system aids the banks in recording financial transactions appropriately. Respectively, banks with the assistance of the financial records develop financial statements that include Balance Sheet and P&L Statement among others, which are used as annual reports. The banks with the assistance of the reports make management and other business decisions. Moreover, financial reports are also used in measuring business performances along with obligations. In this respect, it can be affirmed that banks in order to conduct business operations effectively on a global context are required to adhere the system with the aim of minimizing market as well as financial risks (Baker, 2010; Cameron, 2009; Mannella, n.d.). Conclusion It can be comprehended from the foregoing discussion that global banks are exposed to different risks factors which include financial crises, interest rate risks and credit risks among others on a global context. Correspondingly, banks are required to adopt risk management approaches in order to minimize business, market and financial risks. Subsequently, it has been identified that banks adopting a systematic system based on which transactions in relation to trading operations are managed as well as recognized. The system aids the banks in recording financial and other related transactions appropriately so that the information might be used for preparing annual reports. Banks with the assistance of financial reports are able to recognize business performances and obligations. Additionally, the reports also aid banks in making effective business decisions and formulating appropriate strategies based on which banking operations might be conducted with reduced risks. Consequently, it can be comprehended that banks with the assistance of the system is able to perform operations sustainably. References Baker, R. P. (2010). The trade lifecycle: Behind the scenes of the trading process. United Kingdom: John Wiley & Sons. Cameron, M. A. (2009). Oracle general ledger guide. New York: Tata McGraw-Hill Education. Deloitte Development LLC. (2012). Financial services subledger accounting. Retrieved from http://www.deloitte.com/assets/Dcom-UnitedStates/Local%20Assets/Documents/Consulting%20MOs/CSMLs/us_Consulting_SubledgerAccounting_101512.pdf Hawkins, J., & Mihaljek, D. (n.d.). The banking industry in the emerging market economies: Competition, consolidation and systemic stability - an overview. Retrieved from http://www.bis.org/publ/bppdf/bispap04a.pdf Iberclear. (2014). Stock exchange - clearing and settlement system. Retrieved from http://www.iberclear.es/ing/SistemasTecnicos/Bursatil/CompensacionLiquidacion.aspx Mannella, G. (n.d.). Technology and the hedge fund manager. Retrieved from http://www.hedgefundnews.com/news_n_info/article_detail.php?id=250 M.C.D.R Inc. (2008). Clearing & settlement. Retrieved from https://www.mcsd.com.eg/MCDR/english/showpage.aspx?pageid=22 Mehta, A., Neukirchen, M., Pfetsch, S., & Poppensieker, T. (2012). Managing market risk: Today and tomorrow. McKinsey Working Papers on Risk, 32, 1-16. Sapient Corporation. (2011). Services for valuation and risk analytics. Retrieved from http://www.sapient.com/content/dam/sapient/sapientglobalmarkets/pdf/FactSheets/sapientgm-valandriskanalytics.pdf Solutions Atlantic, Inc. (2011). Regulatory reporting system technical white paper (v 4.0). Retrieved from http://solutions-atlantic.com/pdfs/rrs_white_paper.pdf The Boston Consulting Group, Inc. (2012). An inflection point in global banking. Retrieved from http://www.bcgindia.com/documents/file123001.pdf The Office of Compliance Inspections and Examinations. (2012). Strengthening practices for preventing and detecting unauthorized trading and similar activities. National Examination Risk Alert, 2(2), 1-7. Read More