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Technology Decisions for Broker-Dealers

In considering how to leverage technology in support of the current and new business functions in the global capital markets, no one starts with a clean sheet.

Both the client front end and the panoply of supporting systems across front, middle and back offices will of course have to build on the established base of systems and applications, which is likely to be siloed to some degree. Each firm’s approach will therefore necessarily be different, but there are some core priorities and principles that should prove particularly relevant.

1.It’s all about data. Better organization and sharing of data across business lines has long been anobjective for most financial services business, but several emerging imperatives now make it a key priority. Why? Data quality and access are required to meet regulators’ more frequent, deeper, wider and more complex audit demands. Likewise, the business and regulatory push for near-real-time enterprise risk management the need for optimized collateral management support of cross-asset trading, in-house and for clients center on firms’ ability to harness data.

2. For most, today’s main challenges relate to integration across asset classes. The need for front-to-back process automation in each single asset class is a given, and any remaining gaps at this level should be addressed first. Across asset classes, decisions are of course more complex, with the differing strengths and weaknesses of installed point solutions being necessary considerations. Compromises on data extracts from multiple systems for specific purposes will of course need to be made, while also leveraging standards initiatives (LEIs, FIX, FPML, TESI, etc.) wherever possible.

3. Flexibility and technical agility in an uncertain business environment: things are not set in stone and change in best practice and response to finalization of regulations will need addressing.

4. The new market environment will be faster. The need for speed in many process areas will be paramount: client onboarding, connection to new trading and clearing venues, finding and capturing liquidity, responding to margin calls, collateral location and transformation, risk analysis, reporting—the list goes on.

5. What can be shared? Much has to be asset class-specific, of course, particularly at the trading level. But it is already well-established best practice to share across asset classes, for example, trading technologies (across equities and listed derivatives businesses) and clearing infrastructure (across listed and OTC derivatives). Even these “obvious” shares are far from universal, and regional differences also exist at many firms. The issues here are of course process-related as well as system-related. Overlaps often exist between operations, finance and risk management activities; there is therefore considerable cost-saving potential in rationalizing these, with or without associated system changes.

6. Operations can be consolidated into centers of excellence or shared service centers. Individual processes that are relevant across asset classes are the obvious places to look first, especially where they are undergoing change. Trade reporting is a good example, with potential for consolidation of the global function through a small number of hubs. Reconciliation is another, where numerous firms have already been able to deliver standardized services to support business globally, across more than one product set.

7. What can be mutualized, outsourced or externally managed? It is increasingly widely recognized that specialist external service providers are often able to provide specific business process and technology services more cost-effectively than can be achieved by sub-scale in-house teams. The most obvious areas are relatively “commoditized” but technically complex areas, such as client trading and client clearing connectivity, market data delivery/management and back-office processes.

It may be an understatement to say that few of these decisions and implementation steps will be easy or inexpensive. Assuming that a near-optimal and flexible business strategy can be determined, process and technology moves will be essential for the realization of any new strategy. While of course remaining pragmatic at the tactical level, the right strategic decisions on standards, systems, resource sharing and technology management will be key to sustained competitive success in the brave new world of trading.


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