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Risks in Systems and Standards

The UBS rogue trader has once again brought risk to the forefront of banks thinking. No doubt the usual hand wringing, system reviews and updates will be the response to the anticipated regulatory crack down. Banks around the world will be undertaking risk reviews and analysing their own operational processes and practices and as with many times previously, it will probably be a pointless exercise, as another fraud is bound to be just around the corner.  And the serious criminal or rogue trader will always manage to find a way around the system.  

Risks are a fact of life in financial markets however, not all are understood as one might hope.

Corporate actions risks are more complicated than most as they incorporate a mixture of those in the front office and those in operations. In the main, corporate action risks are understood to take place but not necessarily where they are and how to mitigate them.

The introduction of message standards has had a positive impact on risk reduction. However, having taken donkeys years to arrive, are still pretty fruitless without the necessary technology. Neither is much good unless there is an underlying knowledge of the market and the process. The industry has been in a chicken and an egg situation for years and has had to split investment between message standards and technology when both are needed in equal measure.

In October, the Post-Trade Forum will be debating what these risks are and analysing the various values of investing in technology or standards, as a method of reducing risk.

Alan Wells, Deputy Head of Operations at Butterfield Private Bank will be joining the expert panel of corporate action processing practitioners to debate corporate action risk and the relevance of technology and standards in aiding risk reduction. “But systems and standards are only effective up to a point.” Alan states. As these are not the only weapons required to stave off risk.  More staff education is needed, about corporate actions and how the industry operates, in order to have the best chance of reducing risk. When both systems and standards fail, it is the down to the ability of the staff in the corporate actions department to resolve problems and if they only know a set procedure and have little or no knowledge of markets, they will fail.

Risks are always going to be with the market but unfortunately events like the UBS Rogue trader tends to focus everyone’s attention in one area, when a greater appreciation of risks in operations is called for. This debate is sure to highlight the many risks in corporate actions and how best to mitigate them.


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Gary Wright

Gary Wright


BISS Research

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19 Sep 2007



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This post is from a series of posts in the group:

Post-Trade Forum

The Post Trade Forum's aim is to propagate debate and discussion between senior practitioners in Post Trade Operations in the global securities market; to bring about increased awareness and knowledge across both buy-side and sell-side financial institutions in financial products and be a focal point for firms and practitioners to air views.

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