23 October 2017
Zohar Hod

Post-trade derivatives

Zohar Hod - truePTS

17Posts 80,188Views 0Comments

Timing is Everything The Need for Back Office Speed

20 February 2017  |  5081 views  |  0

Millions, if not billions of dollars have been invested in front office technologies in the last few decades. Many of these investments were targeted at one area of trading which was to increase speed of execution.

Some of the best technology has been created in this area of the financial industry with advancements that have brought us algorithmic trading and the famous Flash Boys story. These developments have been welcomed and continue to change the playing field in the industry. Technology providers as well as algorithmic trading companies have been taking over the once voice brokered fractional spread environments, and clients of banks are now offered the fastest way to perform price discovery, liquidity management, and even collateral management requirements in almost real time.            

However, the sad fact is that it still takes about 2-3 days to clear executed transactions in the equity markets. Alternatively, in the Fixed Income markets, trades move at a slower pace (although advancements in Futures and Bonds trading are moving the markets at a faster pace). Still, to correctly clear (if applicable), settle, and report on these fixed income derivative transactions, it could take days or even weeks given some of the limitation set around the platforms that serve this section of the market.

So, why not also invest heavily into the speed required for middle and back office functions? Why not continue with the innovations needed to instantaneously trade, settle, and report on transactions, positions and overall risk? The answer is that it’s not that simple!

For speed and efficiency to trickle down into the middle and back office functions, a full upgrade, re-build and redesign of many legacy systems is required. Unfortunately, this doesn’t seem like the place where financial institutions could be convinced to invest. Furthermore, when confronting this issue by proposing efficient solutions, it’s important to keep in mind that short term efficiency is NOT a long-term solution. The next set of issues could very well make the new-found efficiency obsolete.

An opportunity – There is a lot of talk about Blockchain lately and announcements of partnerships and new projects around this technology. Many skeptics question the amount of time it would take for large organizations to adopt this technology into to their legacy systems. I therefore propose that we use this time for a systematic change to middle and back office systems and update/reconsider the entire market Infrastructure to be inclusive of workflow simplification and automation of manual processes.

 

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member since 2017
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truePTS delivers an innovative, independent platform, focused on revolutionizing all post-trade workflows in derivatives and related financial products. I'm eager to help continue building and scaling...

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