[SPONSORED COPY]
At the beginning of my career, in 1993, I was a Boxman1 on the MATIF, and I was discovering the world of financial markets. At that time, and until the 2000’s when I chose to shift towards post-trading roles, I felt like I was living in the euphoria of widespread growth. The trading profession was glamorous and attracted talent, with listed derivatives breaking volume records.
Brokerage firms were raking in record profits. New financial centres were emerging, contributing to the internationalisation of managed assets and the development of hedge funds.
Online brokers, the foundation of today’s neo-banks, were emerging. We were not constrained by budgets but by the necessity to quickly expand the range of services offered to our clients—Investment Banks, Institutional Investors, Asset Management Companies, Brokerage Firms, Commercial Companies, or Individuals—at the risk of being overtaken by the competition.
In this context, back offices began to automate more. IT systems were modernised to handle an increasing volume of transactions. Banks invested in technologies to improve efficiency and reduce operational errors, a by product of rising volumes. The globalisation of financial markets also required back offices to adapt to manage cross-border operations and different time zones.
The multiplication of players and, consequently, the increase in competition led to strong pressure on prices, inducing a search for profitability and budget management under constraints. This trend, reinforced by the Subprime crisis of 2008 and, unimaginable at the time, the collapse of a major player, Lehman Brothers, constructed the environment that is now ours.
The reduction of the settlement period for securities transactions to T+1 in the United States and soon in Europe also contributes to the demand for process optimisation.
Changing landscapes
Since then, the regulatory landscape has significantly strengthened. Regulators have imposed stricter standards, such as the MiFID II Directive2 in Europe, the Dodd-Frank Act in the United States, and the strengthening of Basel prudential standards. These regulations have forced back offices to enhance their compliance, control, and reporting procedures, thereby increasing the workload and complexity of operations.
Likewise, operators are no longer solely responsible for the administrative processing of transactions but have also become an important player in the application of financial regulation. Control mechanisms aimed at managing the risk of systemic failure, which was becoming a reality, thus imposed itself more markedly on all actors in the financial markets.
The 2010’s saw the emergence of new technologies such as big data and artificial intelligence. Back offices began to use data analysis tools to monitor transactions in real-time and detect anomalies. The automation of processes continued to progress, with the introduction of robotic process automation (RPA) to perform repetitive tasks. Thanks to datamining, back offices became a link in the fight against money laundering and the financing of terrorism.
The COVID-19 pandemic accelerated the digitisation of back offices. Remote work became the norm, requiring secure systems that were accessible from a distance. Back offices also had to demonstrate greater resilience in the face of market volatility driven by the geopolitical context. Emphasis was placed on cybersecurity and operational continuity.
Beyond that, and even if it remains anecdotal for now, blockchain-based initiatives have multiplied, now offering the possibility of exchanging cash in central bank currency. In the same vein, the digitisation of assets offers new opportunities to actors who are increasingly marketing digital investment products.
Back-office agility
The reduction of the settlement period for securities transactions to T+1 in the United States and soon in Europe also contributes to the demand for process optimisation. In this context, the reliability of counterparty identification data (Standard Settlement Instructions or SSI’s), the development of cross- border settlement circuits, and the implementation of automated processes for position realignment are major challenges. Therefore, the responsiveness of Back Office teams and the added value they bring to the pre-agreement phase (pre-matching) of instructions are differentiating factors.
As a result, post-trading activities must constantly adapt, support their clients, and anticipate the transformation of their operational models and processes. This profession has adapted and will continue to do so. As I often tell the teams, we will likely be fewer in number tomorrow, but we must be more efficient and more competitive… yet our added value will remain essential for front offices and end clients.
Adapting to the playfield
This is where we must focus our efforts, solidifying our uniqueness. Supporting clients in the development of their products, their activities, and the extension of their market coverage will always depend on contributions from experts and responsive organisations in the post- trade industry.
Upgrading our tools and skills to respond to changing market rules, the concentration of players, the strong regulatory constraints that will remain, mastering operational risk, and finally controlling and optimising our costs will be the recipe for success.
This profession has a rich history to the demand for transformation it requires. The strength of our organisations and our teams will increasingly rely on anticipating change and on the innovation driven by our offerings.
Sylvain Person is Head of SGSS Clearing & Settlement Services
1 A Boxman on the MATIF was a professional who operated on the trading floor, typically involved in
trading futures contracts on various financial assets, such as commodities, stock indices, and interest rates.
2 MiFID II is a European Union packet of financial industry reform legislation instituted to regulate financial
markets and replace MiFID (Markets in Financial Instruments Directive).
