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Glossary

The words this industry uses, defined plainly. Every entry describes what a term means; none of them says anything about a particular company, so you will find no claims and no sources here.

A

ABOR — Accounting book of record

The accounting record of what a fund owns, kept on the accounting calendar and used to strike the official net asset value and produce financial statements. It settles the question 'what did we own, on the books, at the close', which is not always the same answer the trading desk would give.See also: IBOR, NAV

AIFMD — Alternative Investment Fund Managers Directive

European rules covering managers of alternative funds, including a periodic report to regulators known as Annex IV. Systems that support it produce that filing from position and exposure data rather than requiring it to be assembled by hand.

Allocation

Splitting one executed order across several funds or accounts. A block trade of a single security is bought once and then allocated, and the rules for doing it fairly are a common source of both operational work and regulatory attention.

AUM — Assets under management

The total value of the assets a firm manages. Used throughout this site as a size band rather than a precise figure, because size is what decides whether a system is a fit and precision is not needed for that.

B

Break

A difference between two records that should agree. Managing breaks — finding them, explaining them, clearing them — is the daily work reconciliation systems exist to reduce.See also: Reconciliation

C

Capital introduction

A service, usually from a prime broker or a placement agent, introducing a fund manager to potential investors. It is a relationship business rather than a piece of software, which is why it sits among the service-provider categories here.See also: Prime broker

Corporate action

An event that changes a security a fund holds: a dividend, a split, a merger, a rights issue. Processing them correctly is unglamorous and consequential, because an unprocessed action leaves the position and the valuation wrong.

Custodian

The bank that holds a fund's assets and settles its trades. The custodian's records are the outside check on a manager's own, which is why reconciliation against them is a daily task rather than an occasional one.See also: Reconciliation, Prime broker

D

DDQ — Due diligence questionnaire

A standard set of questions an investor or manager sends a firm or a supplier before committing. Several bodies publish templates, and the RFP question bank on this site was distilled partly from them.See also: RFP

E

EMS — Execution management system

The system a trader works in to route and execute orders in the market, with the prices, algorithms and venue connections that requires. Distinguished from an OMS by where it sits: the EMS faces the market, the OMS faces the portfolio.See also: OMS, FIX

F

FIX — Financial Information eXchange

The messaging protocol most of the industry uses to send orders and receive fills electronically. A system that 'supports FIX' can talk to brokers and venues without a bespoke integration for each one.See also: EMS, OMS

I

IBOR — Investment book of record

The trading record of what a fund owns right now, including today's activity, kept so the front office can make decisions on current positions rather than yesterday's close. It answers 'what do we own today', where the ABOR answers 'what did we own on the books'.See also: ABOR

ISIN — International Securities Identification Number

A twelve-character code identifying a security internationally. One of several identifier schemes a system must handle, alongside CUSIP, SEDOL and FIGI, because no single one covers every instrument and market.See also: Security master

N

NAV — Net asset value

What one unit or share of a fund is worth: assets less liabilities, divided by units outstanding. Striking the NAV accurately and on time is the core obligation of fund accounting, and being late is itself a failure.See also: ABOR, Fund administrator

O

OMS — Order management system

The system that carries an investment decision from the portfolio manager to the market and back: order creation, compliance checks, routing, allocation and the record of what happened. On this site it means the buy-side sense of the term, not the retail one.See also: EMS, Pre-trade compliance

P

PMS — Portfolio management system

The system a portfolio manager uses to see and shape positions, exposures and cash. Often sold combined with an OMS, which is why this site treats combined OMS/PMS platforms as a category of their own.See also: OMS

Pre-trade compliance

Checking an order against the fund's mandate, regulatory limits and client restrictions BEFORE it goes to market, so a breach is prevented rather than reported. The value is entirely in the timing.See also: OMS

Prime broker

A bank that provides a hedge fund with financing, securities lending, clearing and custody, often bundled. Many also run capital introduction programmes putting managers in front of allocators.See also: Custodian, Capital introduction

R

Reconciliation

Comparing two records of the same thing, typically a manager's positions and cash against the custodian's or administrator's, and investigating what does not match. The differences are called breaks.See also: Custodian, Break

RFP — Request for proposal

A structured set of questions a firm sends prospective suppliers so their answers can be compared on the same terms. This site can run one for you.See also: DDQ

S

Security master

The reference record of every instrument a firm deals in: identifiers, terms, issuer and classification. Almost every other system depends on it, so its errors propagate further than most.See also: ISIN

SOC 1 / SOC 2 — Service Organization Control reports

Independent audit reports on a supplier's controls. SOC 1 covers controls relevant to a client's financial reporting; SOC 2 covers security, availability and related criteria. A Type II report tests whether the controls actually operated over a period, which is the version worth asking for.

Straight-through processing — STP

A trade passing from execution to settlement and accounting without anyone re-keying it. Rarely absolute in practice, which is why it is worth asking a supplier which instruments still require manual handling.

T

T+1

Settlement one business day after the trade. The move to shorter settlement cycles compresses the time available for allocation, confirmation and funding, which is why it appears in so many system requirements.See also: Allocation

TCA — Transaction cost analysis

Measuring what trading actually cost, including the difference between the price when the decision was made and the price achieved. Used to assess execution quality and, increasingly, to evidence best execution to regulators.See also: EMS

W

Waterfall

The agreed order in which a private fund's proceeds are distributed between investors and the manager. The arithmetic is intricate and fund-specific, which is why it is a software category rather than a spreadsheet task.

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