A Revolution In Post-trade Operations
With David Pearson, Head of Post-trade Strategy, Fidessa
The post-trade space is a vital area for firms. The consequences for failing to complete the trade cycle are serious; it’s not going to settle and it’s not going to clear. But to date the technology investment profile has been hugely tilted towards the front office where firms earn revenue, and where we’ve seen some new and exciting developments over the last ten years. More recently we’ve seen a greater focus on the post-trade space and recognition that whilst the job is being done, it’s beset with inefficiencies, unnecessary cost and operational risk. Trading organizations are now looking to move away from their historical reliance on proprietary solutions to handle parts of their post-trade business, realizing that there are alternatives.
One of the fundamental questions firms are asking is how resilient is the business to a single point of failure in the post-trade process? They are realizing that it is not acceptable for their business to be wholly reliant on a single, centralized system.
Setting new standards
Some of the larger buy-side firms have led the way, seeking to improve their operational efficiency and reduce operation risk through the adoption of standards, in particular the FIX Protocol. With the success of FIX in transforming front office workflows, its application in post-trade is a natural direction of travel and is resonating across the industry. And certainly Fidessa’s experience of defining the use of FIX for post-trade has led to wholesale improvements in the automation of the operational workflow, so fewer people and less time is spent managing what really ought to be a seamless process.
The wider buy-side community is now looking for the opportunity to adopt similar ways of working but without the overhead of a large IT investment. What is transforming the industry is the availability of service-based models from trusted suppliers.
We are now seeing solutions like Fidessa’s Affirmation Management Service taking on the work of running and managing the confirmation and affirmation process so that those firms can realize the same operational benefits. It is this service-based approach that is driving widespread adoption of these new workflows across the industry globally, and across asset classes.
Embracing the service model
Firms want to achieve a more efficient business process at the lowest cost but still need to apply the most stringent levels of governance. They are acutely aware that they remain accountable whether or not they are operating the service themselves. Fidessa is seeing a significant increase in the due diligence and ongoing supervision of our services and we welcome that. We are happy to be scrutinized by any customers who wants to assure themselves that when the regulator asks the questions, they can answer knowledgably and confidently.
The most successful outsourcing partnerships work when the firm that is outsourcing is acutely bound into that process; asking the hard questions, leading the way in terms of knowledge, understanding where the regulator is going and maintaining a close relationship with its supplier. We’re seeing an evolution in operational skills towards supervision, process management and oversight and away from pure technology provision and support.
As a result of the business focus on improving the efficiency of the post-trade process, and reducing the operational risk of the existing models, the combination of a workflow built on an industry standard, and a service-based model is generating an unstoppable momentum in the post-trade operation. We are seeing an increasing number of firms adopt the direct affirmation model with the underlying confidence that they are moving in line with the direction of travel of the industry as a whole, and reaping the business benefits as a result.
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