Ovum: Ovum calls for urgent action as post-trade operations fall under regulatory scrutiny Jul 30, 2012 – Rik Turner
Post-trade operations – those traditionally referred to as the middle and back offices – of many capital markets’ participants on both the sell and buy sides are in urgent need of modernisation and automation, according to a new report from Ovum*.
The “favoured child” status of front-end modern trading environments, when it comes to investment, has created major challenges for under-funded post-trade operations infrastructures. In many cases, these are still reliant on batch processing running overnight and, in some scenarios, such as reconciliations in smaller institutions, may even continue to rely on manually poring over an Excel spreadsheet.
With trading institutions being subjected to increasingly stringent regimes with regard to risk management and position reporting, such as Dodd-Frank in the US, MiFID II in Europe, or Basel III globally, capital markets should now be looking to modernise and invest in post-trade operations infrastructure in order to remain compliant in the future.
Rik Turner, Senior Financial Services Analyst at Ovum says “A variety of pressures mean there is now an increased need for investment in post-trade operations – a wave of new regulations, the growing complexity of financial products and the recent rogue traders Jerome Kerviel at Société Générale and Kweku Adoboli at UBS.”
Turner continues, “In each case, the bank’s middle and back office failed to highlight the behaviour that resulted in heavy losses and, at least in the UBS scandal, Adoboli had actually worked in post-trade operations prior to moving into a front-office role. Banking reputations have never been under such scrutiny, and many financial institutions are keen to safeguard against further embarrassments.”
Ovum believes this increased scrutiny should not be perceived as just another burden, since investment in back-end infrastructure is proving to be good practice during an economic downturn. Whether this is to drive down costs or simply to attract customers by handling business in a timely and efficient manner, Ovum feels the time is right for the benefits of upgrading post-trade operations to be seriously considered by the market.
