Portfolio Management and Investment Book of Record Systems
What this domain tests
The exam tests what a portfolio management system (PMS) does, what the investment book of record (IBOR) is, how it differs from the accounting book of record (ABOR), and why trade-date versus settlement-date accounting creates position and exposure differences that must be reconciled.
Core rules and concepts
- PMS functions: position keeping, cash management, valuation, what-if modelling, mandate monitoring, performance and attribution, and order generation.
- IBOR: the front-office, trade-date view of positions and cash. It includes executed-but-unsettled trades, pending orders and multiple custodians, and supports intraday decisions.
- ABOR: the accounting view used for NAV, financial reporting and fund accounting. It typically reflects settlement-date positions, accrued income and accounting policies.
- Reconciliation: IBOR-to-ABOR and IBOR-to-custodian breaks must be investigated within tolerance and aged. Common causes are unbooked trades, corporate actions, FX, accrued income and stale prices.
- Corporate actions: entitlement, elections and payments must be reflected in the IBOR as well as the ABOR, otherwise exposure is understated.
- Data dependency: the IBOR is only as good as its instrument master, price feeds and FX rates.
Worked example
A fund buys £10m nominal gilts on trade date 1 July, settling 3 July. Reasoning: a trade-date IBOR shows a +£10m gilt position and a −£10m cash movement on 1 July, so the PM sees the exposure immediately. A settlement-date ABOR shows nothing until 3 July. For two days the two books differ by £10m. If a pre-trade compliance check reads ABOR rather than IBOR, a subsequent purchase may pass a 10% issuer limit that the true economic exposure already breaches. The exam wants you to identify the date convention, the resulting difference, and the control response: reconcile the break, document the convention, and ensure compliance checks run on trade-date positions.
Traps that cost marks
Using IBOR and ABOR interchangeably; ignoring trade-date versus settlement-date effects; forgetting accrued interest on bonds; using stale or single-source prices; failing to reflect corporate action elections; overlooking stock lending or collateral that changes economic exposure.