I don’t venture to the north of England often, but I do have a work colleague who hails from Yorkshire – the origin of the phrase “where there’s muck there’s brass”. Its basic meaning is that there is often good money to be made from doing the dirty jobs, and it seems like this is particularly true of global financial markets these days. The glamour and machismo of front-office are still there of course, but many firms are finding that streamlining their post-trade workflow can have an immediate impact on the bottom line.
A quick look at different exchanges around the world and their emphasis on clearing and other post-trade services confirms this. For both the buy and sell-side the post-trade stakes are even higher. This is interesting as historically post-trade was regarded as a dark, complicated world that defied any attempts to reduce its cost. But, the industry’s tolerance for inefficiency is fast being dialled down to zero and this is forcing many firms to rethink this attitude.
Two such examples shine through. The first is the use of FIX for affirmation and confirmation processing. FIX has historically been associated with front-office and the routing of orders between counterparties. It makes obvious sense therefore to use the same infrastructure to affirm and confirm the resultant trades. Not only is it cheaper but it follows the natural direction of the workflow and so errors are less likely too. The second area is the emergence of intelligent outsourcing. This isn’t the “run your mess for less approach” of before, but the forging a genuine partnerships, sometimes even between competitors, to knock out duplicated infrastructure.
Given that high-touch regulation and razor thin margins look like they are here to stay, reducing post-trade costs in these and other ways may become the standard model for our industry. Front-office will always remain fiercely competitive, but firms are starting to put these competitive instincts aside when it comes to their post-trade workflow.