Picture the scene: the front office makes a new over-the-counter (OTC) derivatives trade.
Term sheets and confirmations are created. Automated processes then extract, normalise and reconcile the data in them with your internal risk booking system. False breaks - like date formats or rounding errors - are automatically handled. Your middle office teams only need to get involved to resolve genuine errors.
That's the ideal state. Unfortunately, teams usually have to rely on manual work to extract and reconcile this complicated data.
But manual work creates errors, and if you scale volumes without fixing the process, the errors scale too. Manual processes also mean no audit trail, which is problematic for compliance and even more so if regulators get involved.
With the growing emphasis on data quality, transparency and accuracy, current processes just don’t cut it anymore.
We’ve already covered the challenges of OTC confirms data. Now it’s time to look at the benefits of automating all that manual work.
Of course, it’s easy to say automation is the answer, but if it was easy to achieve using traditional technology, everyone would have done it already. So we’ll also look at why you need a platform like Duco, and explore the advanced capabilities that enable you to make automation a reality.
Benefits of automating OTC confirmation checks
Automating OTC confirmations checks helps to reduce operational risk, enables scalable controls and provides a transparent overview of your processes. Let’s explore each of these in more detail.
Reduced operational risk
Removing the bulk of your manual processes significantly reduces the risk of human error. As one Duco client noted, every manual keystroke or side-by-side check is a failure point; whether it’s a transposed number, an extra zero, or reversed dates due to jurisdictional formats. Automation removes these, replacing human error with human oversight.
The removal of data errors caused by manual processes means your Operations team has far fewer false exceptions to go through. This means they can find and address genuine errors fast. Plus, your organisation rapidly gets a clear picture of its financial exposure, lowering the risk of overexposure.
Effortless scalability
Your controls need to scale with the business, processing greater volume and adapting to demands from the front office. For instance, if they start trading new instruments like structured notes with exotic components.
The only solution for firms stuck with hard-coded legacy technology and spreadsheets is to increase headcount. More analysts to manually process more documents and manage more spreadsheets. All because the technology they have to use can only be updated by IT, who also don’t have the resources to meet all the business’s needs.
Automated controls, on the other hand, scale with the business. No-code systems like Duco enable Operations to build and iterate processes much faster, so there’s no need to resort to spreadsheets in the face of change. It also removes a great burden from IT, freeing up resources in your technology team.
Transparent controls
Automating your OTC confirmations checks on the Duco platform unlocks straight-through-processing (STP), which then means you have a clear, consolidated overview of your controls. 4-eye checks become easier and faster, and could even be eliminated in some cases, because you know exactly what is happening to the data.
Nothing is kept in opaque spreadsheets and there is no knowledge siloed with single team members, reducing key person dependency. You can easily explain to auditors and regulators where your data has been and what’s happened to it.
Making it happen
So, this is what the ideal state looks like. Let’s explore several key features of the Duco platform that enable you to realise it.
How Duco makes OTC automation possible
As we’ve already noted, automating OTC confirmations checks is much easier said than done. So how does Duco enable you to overcome the challenges that have stymied Operations teams for a long time?
Flexible automation for unstructured data extraction
One of the biggest reasons OTC confirmations are so difficult to deal with is because they are in PDFs or other unstructured data formats. This means there is no underlying schema that machines can read to interpret the data they contain.
Traditional unstructured data solutions use optical character recognition (OCR) and artificial intelligence models to ‘read’ the text in a document (such as a PDF), giving you a set of data points you can then put into whatever schema you need.
However, these traditional Intelligent Document Processing (IDP) solutions have to be ‘told’ where in a document to look in order to find each data point they are expected to extract. Give them a new document where the layout is different, and they won’t be able to extract the data.
Duco’s adaptive IDP (AIDP) solution solves these problems by harnessing AI tools and techniques to create models that can adapt not just to changes in documents, but also to new formats they haven’t seen before.
These models are self-learning, meaning that any corrections made by human reviewers are fed back into the model so that it can improve its predictions or classifications the next time.
In other words: AIDP starts strong and gets stronger. This is in direct comparison to static IDP solutions which can stagnate or even get worse over time!
Even with automation handling 90% of the work, the remaining 10% – edge cases, missing data, complex clauses – still matters. Duco gives users a structured workflow to handle these exceptions. For example, if a reference number can’t be read, the user can locate it in the PDF with one click. Duco learns from this for the future – reducing exceptions over time.
This reduces the amount of human intervention involved in extracting data from unstructured sources like PDFs. This not only enhances STP but also frees up resources to focus on other parts of the process.
Easily normalise and transform OTC confirms data to update other systems
Once you’ve extracted all the data from your confirmations, you’ll likely have structured datasets, but there will still be differences in the fields. Duco’s Data Prep solution enables you to auto match these fields and quickly map remaining fields together in just a few clicks.
You can also use the Natural Rule Language (NRL) functionality to build data transformation rules without code. This enables you to correct for formatting differences so that you have one standardised dataset that can be automatically fed into risk systems, or into Duco’s reconciliation solution.
Combined with AIDP, this eliminates hours of rekeying and reviewing data per trade.
Fast, accurate reconciliations and powerful exception management
Data errors are particularly bothersome when dealing with OTCs because the issues they cause compound the longer the error remains undetected. The duration of derivatives trades means that errors can persist for a long time, causing issues with subsequent updates.
Also, multiple systems need to use that data, so an error quickly gets multiplied. Slow processes delay settlement, impacting risk positions and capital deployment.
There are two key elements to solving this problem: reducing the number of errors your team has to deal with in the first place, and being able to quickly resolve the errors that remain. Let’s take a look at each.
Removing the noise of false exceptions
Duco’s proprietary matching engine uses a different algorithmic approach to traditional reconciliation platforms. Essentially, while other platforms match data based on ‘key’ fields, our platform compares all data fields to identify the best possible matches.
Even where no match exists, you'll still get partial matches which you can confirm or remove. This compares to the traditional legacy approach, where matching is more binary – data either matches, or it doesn’t.
What this does is greatly reduce the amount of ‘false’ exceptions; data that remains unmatched for superficial reasons. For example, where a date is formatted differently in the two data sets, even though it’s the same date.
These false exceptions eat up your operational resources, as your team has to spend a lot of time rectifying these. They create a haystack in which you have to find the genuine errors that really need your attention.
By delivering significantly higher match rates, the Duco platform reduces the number of exceptions your team deals with, giving them more time to focus on those serious errors.
Resolving issues faster
Duco doesn’t just help you get to the errors quicker; it gives you powerful workflow tools to accelerate their resolution. You can create rules or use our native AI to automatically categorise exceptions based on what’s breaking, then route these to the appropriate teams to rectify.
This automation means that only the genuine outliers that require special consideration from your teams remain. All this ensures that errors are resolved quickly, before they have the chance to propagate downstream systems.
A clear audit trail for OTC confirmations
Duco is a self-documenting platform. You can easily download full process parameters for your data, so you can see exactly how it’s been transformed, enriched and changed. What’s more, because all the transformation rules are written in our no-code Natural Rule Language, you don’t need technical skills to understand them. Everyone from internal auditors to regulators can see what’s happening to your data.
Conclusion
The Duco platform gives you new technology and approaches for handling OTC confirmations data. This is what enables you to finally overcome the barriers to automation that may have held you back for so long.
Now, instead of layers of manual review, you have automated reconciliations between the booking system, confirmation, and term sheet. Your team can focus on resolving exceptions rather than chasing paperwork, eliminating backlogs altogether.
Duco gives your middle office the control, transparency, and scalability needed. You won’t have to rely on IT or manual workarounds, regardless of whether you’re dealing with standard confirmations, structured bespoke documents, or high-volume flows.
Find out more, or watch the Duco platform in action, with our on-demand webinar on OTC confirmations.
