When a compliance rule runs, LUSID does the following:
Values the portfolios the rule applies to
Sorts the resulting contributions into groups
Tests each group against a limit
A contribution is one row from that valuation, that is, a single priced holding, or order in a pre-trade run, with reference data. A group is a collection of contributions. It’s important to keep the three steps above in mind to understand templates, variations, and rules:
Term | What it defines | Example |
|---|---|---|
Template | The type of compliance check, with gaps left for numbers | Split the portfolio by an attribute, then check no single part is too large a share of the whole |
Variation | A version of that compliance check (template) | Check each portfolio separately, or add them together and check the combined total |
Rule | The specifics of a compliance check | Split by country, measure market value, limit 20%, warn at 18%, applies to European Equity funds |
The separation of template, variation, and rule allows you to run several rules with different limits from one compliance check. You choose the template and variation on the Create compliance rule screen, then customise your limits.
Note that variations of the same template can behave very differently, so read the variation’s description before selecting it. See below.
Compliance rule operations
The sequence of steps that form a template draws from five types of operation:
Operation | What it does | Example |
|---|---|---|
Group by | Subdivides each existing group by a single field. For example, grouping by country gives one group per country. | Group by |
Filter | Removes individual contributions, for example | Filter out instruments with an |
Group filter | Removes whole groups rather than contributions within them. | Filter out portfolios with a |
Recombine | Merges every group back into one. | Merge per-country groups back into one group per portfolio |
Check | Tests each group and sorts them into passes and failures. Always the final step. | Check if grouped and filtered contributions contribute less than 20% |
The group by, filter, group filter, and recombine operations form and narrow groups for the final check step to assess as a pass or fail.
For example, to create a rule that checks no portfolio has more than 20% exposure to any one country, you could split the rule into the following sequence of operations:
Group by portfolio
Filter out cash contributions
Group by country
Check whether each country group is below 20% of its portfolio’s value
Note the Steps on the left of the diagram; the template creator names each step, and those names are what you see in a compliance run result. See how to interpret compliance run results.
How does LUSID apply a compliance rule to multiple portfolios?
Each compliance rule applies to a LUSID portfolio group. All compliance rules begin with a valuation; LUSID considers every contribution from every portfolio a single group at this point in the sequence.
If no step in the sequence groups by portfolio, LUSID checks all the portfolios added together. For example, LUSID would measure a 20% country limit against the combined value of the whole portfolio group.
Variation names tell you how the compliance rule template behaves:
Standard variation: Checks each portfolio separately and produces a result per portfolio
Aggregate variation: Adds the portfolios together and checks the combined total, producing one result for the whole group
For example, using an aggregrate variation to create a 20% country limit rule would allow an individual fund to sit above 20%, provided the combined holding across the group stays below it.
What data can a compliance rule check?
A compliance rule can only check data that already exists in LUSID. For example, a country of risk rule might require every instrument you hold to be decorated with the countryOfRisk property; if missing the property, LUSID may not assess the holding.
The same principle applies to anything you want to measure. A compliance rule comparing market values, for example, requires a recipe capable of pricing everything in the portfolio, otherwise LUSID may not value some holdings.
Breaches and warnings
Every check at the end of a rule has two levels:
Breach: Hard limit; LUSID records a group beyond it as a failure which stops orders in the affected group being placed (pre-trade).
Warning: Soft limit within the hard limit; LUSID records groups past the warning level but within the breach level as a warning, informing you without blocking anything.
Note
To disable warnings, set both Breach and Warning to the same value.
Interpreting compliance run results
LUSID provides the building blocks for a compliance rule; confirming that a rule correctly implements your mandate is your responsibility.
You can read the lineage of a compliance result to understand the operations LUSID used to produce it.
Diagnosing a result from its lineage
One line in the lineage covers several portfolios
The compliance template uses an aggregate variation. Choose a standard variation instead.
Every group at exactly 100% in the lineage
The rule template is measuring a figure against itself. Update the template (or contact the creator of the template).
Fewer holdings than expected in the lineage
Check whether the holdings missing from your results are missing the required reference data.
Unexpected group in the lineage
Check what the rule groups by. Grouping on a property with blank values produces a group of its own.