back office structure and functions april 2006. 2 table of contents back office structure and...
TRANSCRIPT
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Table of Contents
Back office structure and functions (Benoit Schaus)
Sourcing (André Vandencamp)
Outsourcing (François Dorland)
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Table of Contents
Back office structure and functions Overview of a financial institution landscape
Why a back office ?
A central department
Some back office issues to conclude
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Illustration : Purchase / Sale of securityA complex operations series
Middle OfficeMiddle OfficeExternalExternal
Bankers & Clients
instructions
Front OfficeFront Office
Check completeness of instruction
(cash availability) in the banking
system
Instruction Electronic
Input instruction in the banking
system
Transmit instructions
Checks client details: cash availability,
signatures in the banking
system
TreasuryTreasury
Validate the orders in the
banking system
Back OfficeBack Office
Print the ticket from the banking system
Generate the counterparty ‘s
deal in the banking system
File the instruction
Book the deal with the
counterparty
Bloomberg
Input deal’s details in the
banking system
Complete the ticket and transmit it
Check client and bank deals in the banking system
with ticket
Execute the deals in the
banking system
Generate, validate and
send the swift messages
File the ticket with swift
messages and broker
confirmation
Overview
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Illustration: a standard IT Architecture for a private bank in LuxembourgA complex technical environment
Bloomberg
CCLux
Client information
Instruction Electronic
S Report
Commercial action
Credit proposal
Know Your Customer
Banking System
MM rates &
security
prices
FX rates
& security
prices
Reporting interne
Bankers Alert
DB_STAGING
OLYFPRO
Fu
nd
Ord
er
Ma
na
ge
me
nt
(FO
M)
Sw
ift
All
ian
ce
Re
co
nC
lea
rstr
ea
m
(Cre
ate
&
Co
nn
ect
)
Semi- automatic
AutomaticIn-house application
phase 2
In-h
ouse
app
licat
ion
pha
se 1
Ext
ern
al a
pp
lica
tio
n
shared with Bankers
Oth
er
Overview
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How is a trade processed in an institution ? (1/2)
Customer contacts
investment advisor
Inv.AdvisorEnters
instruction and sends to HQ
DealerBulks and
checks price quotes
DealerStrikes a deal and enters on
ticket
Middle officeEnters the
ticket + checks compliance
1 2 3
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4 5
Overview
Front OfficeFront Office
Middle OfficeMiddle Office
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How a trade is processed in an institution (2/2)
Settlements Pre-settlement
matching
Cash managementChecks USD
balances
ForexExchanges currencies
ClearerSecurities deliverd
ReconciliationReconcile
cash, securities
InvestigationsInvestigate if
problems occur
AccountingBook in
customer’s account
ReportingInform the customer
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14 13 12 11
Overview
Back OfficeBack Office
Back OfficeBack Office
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Table of Contents
Back office structure and functions Overview of a financial institution landscape
Why a back office ?
A central department
Some back office issues to conclude
9
Why a Back Office ?A simplified model
Front officeFront office Middle officeMiddle office Back officeBack office
Why a back office ?
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Front Office: the place where the deals are done
Front officeFront office Middle officeMiddle office Back officeBack office
•Trade execution•Heavy IT investments•Bloomberg, Reuters, …
Why a back office ?
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Middle office: the go-between among FO & BO
Front officeFront office Middle officeMiddle office Back officeBack office
•Compliance check•Flash P/L for Front Office•Management of complex deals•(Entering tickets)•FO Technical support (curves, rates)
Why a back office ?
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Back Office: the final stage
Front officeFront office Middle officeMiddle office Back officeBack office
• Matching• Settlements • Reconciliations• Reporting
Why a back office ?
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Table of Contents
Back office structure and functions Overview of a financial institution landscape
Why a back office ?
A central department
Some back office issues to conclude
14
Back OfficeA central support Department in a financial institution
Payments
Treasury Trade
Securities
Back officeBack office
A central department
Settlements
Reconciliations
Investigations
Cash management
Foreign exchange
Customer reporting Static Data
Corporate actions
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List of back office functions
Settlements
Reconciliations
Investigations
Cash management
Foreign exchange
Customer reporting
Static Data
Payments
Corporate actions
Back officeBack office
A central department
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Settlements department
Assure that all trades that were executed in the front office are settled on time
Pre-settlement matching
Ensure correct settlement on settlement date
Usually organised by country e.g. international settlement and domestic settlement
Failed settlements can cost the institution a lot of money
Settlements
Back officeBack office
A central department
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Cash management department
Check all the balances at correspondent banks
Ensure that money is available to finance trading and payments activity
Invest available funds overnight to ensure best return
Cash Management
Back officeBack office
A central department
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Foreign exchange department
Ensure correct settlement of the foreign exchange transactions
Handle the administrative part of the foreign exchange deal (e.g. sending SWIFT MT 300 confirmations)
Foreign Exchange
Back officeBack office
A central department
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Payments department
Ensure payments are made
Send payments instructions over SWIFT or other means of communication
Follow up on the payment instruction
Payments can also originate from securities or foreign exchange deals
Payments
Back officeBack office
A central department
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Reconciliation department
Reconcile positions for cash and securities
Reconcile movements for cash and securities where needed
More and more automated
Reconciliation
Back officeBack office
Reconciliation systems can automate up to about 95 % of reconciliation items
A central department
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Customer reporting department
Important aspect of customer service because of its visibility to the customer
Once settlement and reconciliation is done
Well automated nowadays
Push and pull distribution methodology
Customer reporting
Back officeBack office
A central department
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Investigations department
More complex area in the back office
No real automation opportunities
Close management monitoring required
Investigations
Back officeBack office
Institutions have been seen to have Millions of USD outstanding in
investigations for years
A central department
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Static data department
Data scrubbing
and checking
Internal feedse.g.
customer information
External feedse.g.
Bloomberg, Reuters
Back office processingSecurities dataCustomer dataCorporate actions information
A central department
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Corporate actions department
Mandatory corporate actions Voluntary corporate actions
Bank
Issuing company
Investor
Bank
Issuing company
Investor
Communication for information Communication triggers decision
ok ?
A central department
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Some other department
Pre-trade compliance
Post-trade compliance
Compliance
Back officeBack office
Efficiency department Business requirements
Project implementation
Efficiency enhancements
Investment funds NAV department
…
…
A central department
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Table of Contents
Back office structure and functions Overview of a financial institution landscape
Why a back office ?
A central department
Some back office issues to conclude
27
Some back office issues to conclude…
STP, still the buzzword in back office processing?
T+3,T+2,T+1,T+0 What is the discussion all about?
How can a failed trade cost money to the institution?
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