Surge in Regulation Forces Post-Trade Rethink

Terry Flanagan

As regulations continue to bombard the financial services sector, firms are being urged to modernize and automate their post-trade operations.

With the Olympics currently taking center stage in London, one market commentator sees similarities with competing athletes and the challenges facing capital markets’ firms in adapting to this new regulatory landscape.

“When it comes to regulation and compliance for the capital markets, we certainly face an Olympian task,” said Magnus Almqvist, senior product specialist at SunGard’s capital markets business, a trading and technology firm.

“At present, we aren’t exactly in fighting form. The industry has sustained several serious injuries, hampering its ability to perform well in forthcoming events. Despite the many stumbles and falls along the way, we are forging ahead and becoming stronger.

“Our referees, the regulators and politicians, are looking on in dismay and are now busy reviewing rulebooks on how the game is played, judged and monitored.”

With some firms’ post-trade infrastructures, traditionally referred to as the middle and back offices, seriously lagging behind the more modern front-end modern trading environments and key piece of securities reform on both sides of the Atlantic, including Dodd-Frank and MiFID II, set to hit the shores in earnest in the coming months and years, it is going to be a big ask of some in the industry to remain compliant in the future.

“A variety of pressures mean there is now an increased need for investment in post-trade operations—a wave of new regulations, the growing complexity of financial products and the recent rogue traders Jerome Kerviel at Societe Generale and Kweku Adoboli at UBS,” said Rik Turner, a senior financial services analyst at U.K. consultancy Ovum.

“In each case, the bank’s middle and back office failed to highlight the behavior that resulted in heavy losses and, at least in the UBS scandal, Adoboli had actually worked in post-trade operations prior to moving into a front-office role. Banking reputations have never been under such scrutiny, and many financial institutions are keen to safeguard against further embarrassments.”

Turner believes that investment in back-end infrastructure should not just be perceived as another burden and is good practice during an economic downturn. He says that it can drive down costs and attract customers by handling business in a timely and efficient manner.

Meanwhile, it may not be all doom and gloom for the financial sector as this rise in regulation is likely to lead to more jobs in compliance.

“We [have] found that firms are putting more into compliance hiring; well ahead of finance recruitment,” said Jon Goodman, risk, regulatory and compliance consultant for BrightPool, a U.K. financial services recruitment firm.

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