Corporate finance remains aloof from many of the operational assessments that are focused on systems and procedures in the secondary market. Many people working in corporate finance also have an aloof attitude to operations with hardly any awareness of the
settlement requirements of many of the deals they create. Incidentally this also includes creating exotic transactions that look good on paper but are a total nightmare to settle and can cause plenty of market headaches for anyone dealing in them.
It is this detachment of corporate finance from the secondary market operations that is a feature in the
2008 Corporate Finance report recently published. The report details the systems functional requirements within corporate finance and highlights the extreme limitation of systems actually used.
The main systems apparently are Microsoft Word and Excel with plenty of manual intervention to ensure data and information is distributed. This is mainly by e-mail.
Such an operational structure in the secondary market would be immediately investigated and no doubt regulators would question the weaknesses and risks associated with such a fragmented set up.
Many of the activities undertaken within corporate finance is based on comunication between different people within the project and those brought inside to market and promote the deal and this usually means use of e-mail. E-mail is not the most secure medium
and also exposes the firm to risk.
Why then is it that regulators have not taken more notice of an area of the securities industry, which is the most high profile and most profitable and covers significant risks for the banks and their counterparties?
As the industry begins to be reconstructed when the crisis subsides it will be interesting to see if corporate finance comes under greater scrutiny by the regulators. I don't see why not and in fact it's about time.
Blog updated: 29 May 2015 16:31:44