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Date: 01 January 2016

Total Equity Reconciliation for Derivatives

This paper focuses on a little known technique for accurately reconciling listed and OTC derivatives in fast moving trading environments. The approach is applicable to all instrument classes that are processed on a FIFO (first in first out) basis and include agricultural, energy and metal commodities, CFDs, index or interest rate futures and some options.

Total equity reconciliation aims to account for the different allocations of profit between realised and unrealised which are caused when two systems process the same FIFO trades but in different orders, an inevitable consequence of processing data in disparate systems. It is not the purpose here to discuss the mathematics behind FIFO processing, but to look at the requirements of a reconciliation process to account fully for these differences.

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Duncan has over 30 years experience in the financial markets working in both New York and London. He was previously Global Head of Operations for a $350bn asset manager, Head of Operations at a London hedge fund and Head of Back and Middle Office Development at the largest hedge fund in Europe. Duncan is a keen sailor and can be found regularly crossing the channel in his yacht 'Liquid Asset'.