Trade Expense Management in Focus

Terry Flanagan

Trade expense management is emerging as a major pain point for the sell side as they experience retrenchment in IT operations as a result of new regulations, according to Terence Faherty, head of product strategy, revenue and expense management at Broadridge Financial Solutions.

Broadridge has launched a trade expense managed service as part of its Revport revenue and expense management technology. “Trade expense is an area where the banks are focusing on because it is such a large cost item and it’s not core,” Faherty told Markets Media. “It’s definitely a great opportunity for the banks to stay ahead of the margin compression that they’re feeling, and to be proactive.”

Post-trade expenses include brokerage, exchange, clearing, settlement, and regulatory fees associated with executing a transaction.

“These operations aren’t core to an investment bank’s operation,” said Faherty. “They’re looking at offloading these tasks to a managed service, and then even further to a utility.”

Beginning with Basel 2, waves of new regulations have been putting margin pressure on banks, and the banks have reacted by reducing operating costs in order to preserve a healthy margin.

Outside of the top-tier banks, which have invested a lot of time and energy building their own internal trade expense systems, broker-dealers do not monitor these expenses at the level that they need to, which leads to revenue leakage, over-billing and other costly errors.

“They monitor these expenses at a very high level, and it’s a very manual and costly a way of monitoring these expenses which leads to a lot of fee leakage,” said Faherty. “What we’re seeing in the industry is a need to reduce overall operating expenses.”

Broadridge’s technology will automatically calculate those expenses at the individual trade level. “Since you’ve done it at that level, you can capture any of the fee leakage that goes on,” Faherty said. “We can then allocate that back internally through the organization at the for a more accurate profitability analysis as well as more accurate costing passed to the client.”

Featured image via Xuejun li/Dollar Photo Club

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