Post-trade takes centre stage in industry drive for operational efficiencies

After years of a lack of investment, banks are seizing theopportunity to bring in new post-trade technology to realise greateroperational efficiencies.

It is no secret that since the financial crisis, banks havebeen under pressure. Falling revenues resulting from lower trading volumes andhistorically low interest rates have combined with increased internal andexternal costs.

At the same time, sweeping regulatory reforms have requiredfirms to invest in new technology and bring greater automation and transparencyto their operations.

Historically the front office has been the principalbeneficiary of technology investment as markets have increased in sophisticationand speed. Today it is the middle and back office where firms are having toinvest to comply and gain an edge on their rivals.

Clients are also under pressure from reforms and the drivefor efficiency in their operations. In today’s market they require moregranular, transparent data from their service providers in real time, asignificant change from the previous next day settlement statements ofyesteryear.

But for banks that have not invested in their post-tradeoperations, meeting the client demand in a cost effective and efficient way isproving challenging. 

“Derivatives clearing and settlement platforms have beenlagging behind in terms of technologies used and keeping up to the high demandsof the regulators and clients,” said Nachi Muthu, head of derivatives tradingand clearing solutions, Broadridge.

“Banks need to either upgrade their middle and back officeplatforms to keep up or fundamentally reassess their derivatives business.Achieving this in a cost-effective way is the key.”

A number of banks and brokers have chosen the latter course,pulling back from their derivatives businesses or exiting the market entirely.Those that remain in the market have the opportunity to grow but to do so needto adapt to the new normal.

Historically banks’ capital markets businesses have evolvedinto separate silos running entirely different technology stacks.

Over the past five years some banks have launchedinitiatives to simplify operations across different divisions, breaking downthe silos and realising efficiencies from merging technologies and reducing thenumber of providers.

Efficiency in the back office is key to achieving the fullbreakdown of the silos. Banks need a real-time, multi-asset solution combiningboth listed and OTC derivatives on the same platform.

They need automated clearing and settlement enabling theleast amount of manual interaction in a system that is connected to externalclients enabling them to see their trade and position updates in real time.

Investing in modern, real-time technology in the back officenot only increases the efficiencies and enables banks to lower overheads andoffer a better service to clients. It also reduces the cost of maintenance andthe risks of errors and instances of exceptions.

“When banks adopt a modern multi-entity platform, they canachieve high quality while keeping their costs down,” said Muthu.

But there are barriers to adoption that are slowing downinvestment. It is often an easier decision for executives to maintain thestatus quo rather than taking bold investment decisions, delaying theinevitable for another day.

There is no doubt that change is sometimes perceived as difficultbut for those firms that do take the initiative, the decision very quickly  delivers ROI in terms of a lower ongoing costmodel via a more efficient and compliant offering.

“Changing the paradigm of software licensing to an SLA-basedtechnology service model would ease the pain for the banks in dealing with thisgreat change,” said Paul Clark, head of institutional strategy and productmanagement at Broadridge.  

“Choosing a partner who has great experience in providing a multi-entity,multi-asset platform would significantly reduce the risk of the change. Ofcourse evaluating the quality of the underlying technologies used is a must.”

In summary, the banking and FCM community must meet the ever-increasingneed for on-demand services from both their clients and regulators by moving tosophisticated real-time platforms for derivatives clearing and settlement. Manyof the current legacy platforms need to be upgraded and in many cases replacedby modern technology platforms. As the total cost of ownership for investingindividually in such platforms could be prohibitive, banks have to look to market-provenservice providers for efficient multi-asset solutions to mutualise these costs.The banks who adapt to the new normal will recognise a significant advantageover their peers in terms of operational costs, efficiency and client service.

Find out more on how you can increase efficiencies and lowercosts in your operations: download The Future of Derivatives Clearingwhitepaper at: www.broadridge.com/future-of-derivatives