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
At the same time, sweeping regulatory
reforms have required firms to invest in new technology and
bring greater automation and transparency to their
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
"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
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
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
"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
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
Find out more on how you can increase
efficiencies and lower costs in your operations: download The
Future of Derivatives Clearing whitepaper at: www.broadridge.com/future-of-derivatives