It is therefore crucial to have a system in place that can scale, accommodate complexity, and can be customised to audit and manage records according to regulatory, organisational and product specific criteria. One method of mitigating risk is through the use of derivatives to for example, balance a position in a pre-owned security, or to take a long or short position without being fully invested. Derivatives, whose intrinsic values are derived from an underlying asset, are heavily weighted on speculation in regards to the price of the underlying, and consequently their prices fluctuate wildly. Exotic derivatives, which add a layer or several layers of complexity to a plain vanilla derivative by taking into account various factors, such as volatility, or by incorporating more than one underlying security, can be especially difficult to monitor in terms of value and pricing.

Exotics can provide great value to traders by allowing them to take advantage of market inefficiencies and by dispersing financial risk across several fronts. However, managing them can be especially cumbersome and laden with operational risk. Therefore it is crucial that data within an organisation is consistent and easily and efficiently accessible. This allows for a reduction of the operational risk associated with data gathering, inputting and processing, and has the added benefit of increasing transparency as well as allowing for more accurate reporting of investment activity.

This becomes even more vital with the trading of exotic instruments and derivatives due to their inherent complexity. By processing instrument behaviour through a centralised database, operational risk associated with complexity and lack of visibility is minimised; and the observer, whether a portfolio manager, or tax accountant, can better understand what is actually happening to the instrument in question. Instead of reconciling information across numerous sources, any changes made to the holding can be quickly translated across the investment spectrum, so instruments can be evaluated in real time. In practice, implementation of a management and reporting system for exotic instruments can be especially difficult and time-consuming.

Traders may begin trading a new instrument without concern for the trade processing and accounting that needs to occur behind the scenes, and may be trading a new instrument for weeks, months, or even years before it is properly configured in the internal management and accounting system. Reducing the time gap between trading and reconciling the trade can go a long way to increasing visibility into the actual performance and values of the new instruments.