CTI Releases First Stand Alone Compliance System

Compliance Tools Incorporated (CTI) may raise the bar on company-wide compliance checking with its new Portfolio BlackBox (PBB) stand alone compliance software. The new software will not only allow a company's compliance system to be more flexible in accommodating SEC and securities firm guidelines but will also run at real-time speeds, according to Mitchell Kraskin, president of Compliance Tools, Inc.

"If people want to keep their trading systems, keep their trading systems. If people want to keep their accounting systems, keep their accounting systems. But they should really go best of breed with their compliance technology," Kraskin said.

"We're kind of advocating that we do a brain transplant. We're going to surgically remove the compliance brain that was there, and put in one of our own, and it's going to be transparent to the rest of the system," he added.

In the past, institutional investors have been limited to post-trade and pre-trade compliance systems, which have had several disadvantages for brokers and money managers, especially as the prospect of T+1 approaches. While post-trade systems have cost portfolio managers money as they must unwind trades, pre-trade systems have suffered from poor scalability. In other words, as the numbers of trades entered into a system increases, the process slows down as each trade in the queue is checked against each rule in a linear fashion.

In addition, most compliance software comes bundled with securities firms' trading systems, and, as a result, only the rules programmed into the system are available, and the process of adding new rules as clients require them can be daunting.

The PBB, however, confronts all of these ills due to CTI's Rule Definition Language (RDL), a new hybrid language, patent pending, which combines the best features of C++ and SQL. Setting up the PBB entails the lengthy process of identifying all the firm's rules and supplying fresh data to support them. But once that process is complete, new rules can be programmed easily using RDL, and the system can run on the firm's servers. Compliance officers, educated to use RDL by CTI, will be able to add new rules in-house, Kraskin said.

"Rather than having to go back to the vendor and hope that they're going to dedicate a team of people to create new rules," Kraskin explained, "you take on this package of PBB, and over time, you'll be building your own rules, anytime you want." Kraskin points out that RDL is compatible with XML, thus allowing the PBB to work with browser-based trading systems. In addition, the more servers a firm uses, the more scalable the PBB becomes, due to RDL's parallel processing abilities.

Several other companies have been working on stand alone compliance products. In June, WST reported that CAI Technology Group, a buy-side consultancy and systems provider, is planning to release its stand alone compliance tool, titled Enterprise-Wide Stand-Alone Compliance (ESTAC), by year's end. However, to Kraskin's knowledge, ESTAC has not yet been released. Fredda Ackerman, president and CEO of CAI, was not available for comment.

Kraskin says that the cost of installing PBB will vary when taking into account technical support and consulting charges, but he noted the licensing fee alone can range from $250,000 to $500,000. Currently, according to Kraskin, CTI has one New York-based client, which he declined to name, at which the PBB has been delivered and installed. It is in the process of its acceptance testing, and is expected to go live in the coming months.