trade management - the case for more functional and utility-like systems
TRANSCRIPT
©2011, Cognizant
Cognizant Research Center February 2011
Trade Management The Case for More Functional and Utility-like Systems
| ©2011, Cognizant 2
Effects of the global financial crisis on post-trade operations of buy and sell side firms
Asset managers tilting towards greater automation and outsourcing of post-trade activities as they face relentless demand for generating greater alpha while cutting costs and increasing efficiencies
Custodians are reviewing their service models with a view to incorporate greater levels of transparency
Brokerages looking for solutions that will help them comply effectively with new regulations
Cloud-based, utility-like trade management systems will strengthen the financial muscles of capital market firms by providing them with the much needed flexibility to focus on core operations
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Asset ManagersFactors Pushing for Improved Trade Management Systems
• Inability to handle the growing volumes of exotic securities has lead to a fail-rate of more than 30% in trade confirmation.
• Complex, new trading strategies and expansion into new asset classes and markets is ratcheting up the pressure on middle- and back-offices.
• Reliance on manual processes in many day-to-day operations, such as trade verification has created long-standing inefficiencies
Inefficient Trade Management Systems
• High incidence of trade failures
• Trade capture errors
• Lengthy repair queues
• Asset manager on-boarding time
Post-trade Pain Points
• Cost savings
• Improved quality
• Assessing internal capabilities and expertise
• Focusing on core competencies
• Rationalizing technology
• Supporting new product launches
Imperatives for Asset Managers
• Reduction in total cost of technology ownership
• Non-value adding operations can be eliminated
• Help leverage economies of scale, and focus on high-value activities
• Ensure access to latest technology
• Eliminate the risk of acquiring talented staff
• Helps make a clear measure of risks depending on the nature and criticality of the component outsourced
• Create a level playing field by providing smaller players access to the best technology
How Hosted Solutions Can Help
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Custodians
• Face demands for greater transparency and real-time reporting from asset managers
• Have expanded into new geographies. On-boarding same client on different platforms is time consuming
Monetizing Non-Strategic IT Assets
• Have built global platforms for back-office outsourcing
• Despite redundancies, these platforms can be used to provide commoditized post-trade support
• High volume, low-return processes can be executed with an external service provider in a cloud environment
Custodians can Leverage their Outsourcing Platforms Through Cloud
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Brokerages
• Executing trades over the phone will become a thing of the past
• OTC derivatives moving to exchanges will mean systems need to be upgraded to meet compliance requirements
OTC Regulations Pushfor Improved Systems
• Brokerages have had to pay huge fines for failure to comply with SEC requirements to preserve records
• Putting these records on the cloud will help them save money
Clouds Can Help Brokerages With Regulatory Compliance
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Cloud-based Utility-like Trade Management Systems
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Technology FinancialServices
Legal/Professional
Services
Retail Healthcare Manufacturing Education Energy Government
Financial Services, a clear leader in cloud adoption across industries, next only to technology sector (%)
• A survey by Mimecast found that 68% of financial services firms want to move more activities to the cloud as their initial rollouts helped overcome fears such as security concerns, loss of control and performance worries
• IDC estimates that the number of trading firms using SaaS solutions has increased by 40% during the past four years
Cloud Adoption High in Financial Services
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Before Making the Move to Cloud
• Perceived loss of control and decreased customization
• As operational risk moves to the provider, their expertise in the field becomes crucial
• Provider’s prioritization will drive the introduction of new technologies
• Once outsourced, bringing a function back in-house could be difficult due to loss of expertise
• Poor financial viability of the vendor could create serious risks
• Shift to variable cost model could result in higher costs if volumes grow significantly
Understand the Risks
• Conduct a thorough analysis of the speed and costs associated with choosing a vendor
• Evaluate your core competencies before moving to the cloud
• Analyze the vendor’s geographic reach and the ability to cater to multiple teams simultaneously
• Optimize trade management to reduce processing costs in the later part of the trade life cycle
• Demand transparency from the vendor over risk management
• Determine the clear operations risk profile to ensure overall control
Perform Due Diligence
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• Multi-entity, multi-currency and multi-instrument processing
• Support various messaging protocols (ISO 15022, ISO20022, XML, etc.)
• Integrate multiple channels and formats
• Tailoring of automation, processing and information delivery to user requirements
• Message validation, business validation, template validation and outbound message validation
• Workflow engines that allows exception management through calendar based user / manager dashboards
• Risk dashboard to present data / transactions based on user configurable risk profiling
• KPI dashboards to monitor performance
• Extensive report generation and delivery capability
• Ability to integrate with third-party reporting tools
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Before Making the Move to Cloud
Look For…
©2011, Cognizant
Akhil TandulwadikarCognizant Research Center
Aashish ChandorkarCognizant Business Consulting
For more information, please visit: http://www.cognizant.com/InsightsWhitepapers/Trade-Management-Systems.pdf
Thank you