Post-trade takes centre stage in industry drive for operational efficiencies
After years of a lack of investment, banks are seizing the
opportunity to bring in new post-trade technology to realise greater
operational efficiencies.
It is no secret that since the financial crisis, banks have
been under pressure. Falling revenues resulting from lower trading volumes and
historically low interest rates have combined with increased internal and
external costs.
At the same time, sweeping regulatory reforms have required
firms to invest in new technology and bring greater automation and transparency
to their operations.
Historically the front office has been the principal
beneficiary of technology investment as markets have increased in sophistication
and speed. Today it is the middle and back office where firms are having to
invest to comply and gain an edge on their rivals.
Clients are also under pressure from reforms and the drive
for efficiency in their operations. In today’s market they require more
granular, transparent data from their service providers in real time, a
significant change from the previous next day settlement statements of
yesteryear.
But for banks that have not invested in their post-trade
operations, meeting the client demand in a cost effective and efficient way is
proving challenging.
“Derivatives clearing and settlement platforms have been
lagging behind in terms of technologies used and keeping up to the high demands
of the regulators and clients,” said Nachi Muthu, head of derivatives trading
and clearing solutions, Broadridge.
“Banks need to either upgrade their middle and back office
platforms 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 need
to adapt to the new normal.
Historically banks’ capital markets businesses have evolved
into separate silos running entirely different technology stacks.
Over the past five years some banks have launched
initiatives to simplify operations across different divisions, breaking down
the silos and realising efficiencies from merging technologies and reducing the
number of providers.
Efficiency in the back office is key to achieving the full
breakdown of the silos. Banks need a real-time, multi-asset solution combining
both listed and OTC derivatives on the same platform.
They need automated clearing and settlement enabling the
least amount of manual interaction in a system that is connected to external
clients enabling them to see their trade and position updates in real time.
Investing in modern, real-time technology in the back office
not only increases the efficiencies and enables banks to lower overheads and
offer a better service to clients. It also reduces the cost of maintenance and
the risks of errors and instances of exceptions.
“When banks adopt a modern multi-entity platform, they can
achieve high quality while keeping their costs down,” said Muthu.
But there are barriers to adoption that are slowing down
investment. It is often an easier decision for executives to maintain the
status quo rather than taking bold investment decisions, delaying the
inevitable for another day.
There is no doubt that change is sometimes perceived as difficult
but for those firms that do take the initiative, the decision very quickly delivers ROI in terms of a lower ongoing cost
model via a more efficient and compliant offering.
“Changing the paradigm of software licensing to an SLA-based
technology service model would ease the pain for the banks in dealing with this
great change,” said Paul Clark, head of institutional strategy and product
management 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. Of
course evaluating the quality of the underlying technologies used is a must.”
In summary, the banking and FCM community must meet the ever-increasing
need for on-demand services from both their clients and regulators by moving to
sophisticated real-time platforms for derivatives clearing and settlement. Many
of the current legacy platforms need to be upgraded and in many cases replaced
by modern technology platforms. As the total cost of ownership for investing
individually in such platforms could be prohibitive, banks have to look to market-proven
service providers for efficient multi-asset solutions to mutualise these costs.
The banks who adapt to the new normal will recognise a significant advantage
over their peers in terms of operational costs, efficiency and client service.
Find out more on how you can increase efficiencies and lower
costs in your operations: download The Future of Derivatives Clearing
whitepaper at:
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