A decade after the Great Recession, financial services firms have to double down on removing inefficiencies but are facing pushback on implementing new IT solutions.
(David Pearson is the head of post-trade strategy at Fidessa, a vendor providing electronic trading, investment and information solutions. In his post, he oversees the creation and spread of new business ideas across the global Fidessa buy- and sell-side community. He is also engaged in the restructuring of business flows across financial markets, from pre-trade through to post-trade and middle office environments. Pearson, who has been with Fidessa since 1994, has also served in implementation and project management roles, and served as a business analyst and solutions architecture. Before joining Fidessa, Pearson worked at several brokerage firms in London, learning firsthand about the workflow of the trading floor and the technology that supports transaction processing. Aside from Fidessa, Pearson is co-chair of the FIX Trading Community’s EMEA Post-trade Working Group, and is an active player in the global industry debate about the future of electronic confirmation models. He recently took time out of his schedule to discuss the shadow that the Great Recession still casts upon post-trade operations.)
David Pearson, Head of Post-Trade Strategy, Fidessa
Q: Since the Great Recession, what have been the major impacts of the global move to passive investment strategies and vehicles upon back-office securities operations? What have been the impacts of smaller margins for fund managers upon Ops staffs? Have post-trade Ops budgets gotten tighter and more difficult to manage?
A: The most significant issues are that the margins are tighter in the passive investing business model and the active funds that continue to compete for investment, and therefore the tolerance to operational inefficiency is smaller.
Business operations managers are having to fight for budget to do projects that will have a positive impact on inefficiency, but these projects have to show a rapid return on investment [ROI].
At the same time, the effect of regulation post-recession has been to divert budget away from operational efficiency and onto mandatory regulation projects: reporting, record keeping, etc.
So, the ability of operations to improve the workflow, mitigate operational risk and improve efficiency has been significantly hampered.
Q: Post-Great Recession, what instruments are causing the most pain for post-trade operations? Given the wrenching aftermath of the Great Recession, why are firms still using manual or partially manual systems for any post-trade function?
A: One key area where this is clear is the post-trade management of exchange-traded derivatives [ETD]. The process today remains manual for many asset managers.
This has a negative impact downstream on client reporting, and cash and collateral management. While utility services have emerged to automate the post-trade ETD process (like Fidessa AMS) the regulatory burden has made it difficult for the buy side to adopt new services despite having clear business benefits.
Q: What are some areas of hope in the post-trade world after the Great Recession?
A: I sense strongly that many firms, buy-side and sell-side, want to focus on business-related projects in the next years and catch-up on improving operational models to the benefit of the business and client, rather than the continuous diversion of regulatory demands.
Q: What emerging technologies are giving you some optimism for the future of post-trade operations?
A: While some discreet projects may be looking at new technologies like DLT [blockchain/distributed ledger technology], I see much more interest in services and utilities that offer achievable ROI, whether that’s through greater efficiency and accuracy of the process, or the use of machine learning and RPA [robotic process automation] to create a step-change in the client service.
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