Hong Kong Post-Trade Roundtable: Putting Together The Pieces
On the 4th June the GlobalTrading journal hosted its second annual post-trade roundtable. Last year’s was welcomed by a black rainstorm, and this year’s was met with fierce sunshine. Whether the weather reflects market mood or not remains to be seen.
The roundtable focused on a number of major issues that reverberate across the trade lifecycle and into the back office. The main topic under discussion revolved around the split between automation within a firm, offshoring processing to a cheaper environment, and outsourcing processing altogether. As is often the case, a careful balance must be found between saving costs and cutting back on functionality . The fundamental point remains that no matter what processes are moved where, and what is automated entirely or partly, the responsibility for post-trade compliance and risk management has to stay within a firm.
There was also a conversation around the changing value of labor within the firm: the value calculation between offshoring labor intensive processing to a cheap market where there is a high staff turnover, and keeping the work in a more expensive environment with better staff retention that encourages staff improvement is changing.
A major consideration leading on from this point is that in the case of controversy (eg Libor fixing, FX rate scandals), it is often the case that these areas won’t be fixed until a person in a firm is made personally responsible or accountable for such transgressions. This is often forced by regulators. Culture within a firm does not drive compliance and surveillance technology forwards; the technology exists, but its uptake is limited until regulation forces firms to engage. As was said in the room, everybody believes that lighting will strike somewhere else first. It remains to be seen how many billion dollar fines it takes before surveillance and compliance becomes an area where global firms start to implement solutions ahead of the regulators. As is often the case however, the technology and people that the regulators have access to, needs to rapidly increase in level and complexity to enable regulators to properly monitor and control their jurisdictions.
It was widely agreed that an area that needs attention first is the standardization of technology and terminology. There are ongoing efforts to push the uptake of FIX in allocations and confirmations, and standardize models and the way different elements of software talk to each other to alleviate many issues that arise during automation and outsourcing.
With increasing trades across asset classes and across different arms of the firm, the legacy silos that divided up responsibility and trading from the middle and back offices have to become a thing of the past. If systems cannot communicate with each other, it becomes very difficult to holistically manage risk and exposure across a firm, and it becomes almost impossible to properly monitor costs and commissions, especially across markets as disparate as Asia’s.
In summary, the event was a chance to discuss such theoretical matters against such market moving backdrops as the Hong Kong – Shanghai Connect operation that is unfolding in Hong Kong and regulation that is coming out of Europe and the US. It is a time for change and evolution in post-trade processing, and once the pieces are all put together, firms should be able to really see the difference and leverage real benefit.