Financial Markets Operations Management

CHAPTER 14 Reconciliation

14.1 INTRODUCTION

Irrespective of what part of the company you are involved with, you will always need to know what your positions are, whether they are securities-related or cash-related. A problem arises when the position that you think you have either does not exist or indicates a different amount to what you actually have. In other words, you need to be sure that the position you think you have does actually exist. In this chapter you will see why you need to know this and how we can achieve it.

After reading this chapter you will:

• Understand the importance of maintaining an efficient reconciliation system;
• Be able to compare the different types of reconciliation and evaluate their strengths and weaknesses;
• Be able to perform a reconciliation and assess the effectiveness of the operational unit responsible;
• Be able to describe the regulatory requirements;
• Be able to take a manual reconciliation process and design an automated system.

As an example of a potential problem, your records show that you have USD 1,000.00 in your bank account. You receive a bank statement showing a credit balance of USD 1,000.00. You then make a payment of USD 900.00 on the assumption that you have sufficient funds in your account.

Thinking that you have a credit balance of USD 1,000.00, you are surprised when you receive a subsequent statement stating that you are several hundred US dollars overdrawn. In addition to being overdrawn, you will be liable for overdraft ...