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New Celent research reveals the high cost of middle and back office operations in Japan

SmartStream Technologies, the financial Transaction Lifecycle Management specialist, today announced the release of new SmartStream-sponsored research by Celent examining attitudes and approaches to delivering STP in Japan.

The report, “Post Trade Processing in Japan: Back and Middle Office STP at Brokerages, Banks, and Asset Managers” examines the state of STP in Japan across asset classes, including derivatives, equities, foreign exchange, cash, and fixed income. Conducted through a survey of domestic Japanese brokerages, commercial banks and asset managers, the report identified a number of issues affecting the operations at Japanese financial services firms.

Asset classes in Japan remain siloed across multiple business lines, characterised by fragmented systems that limit potential efficiency savings. Of the three financial sectors surveyed, asset managers in Japan are placing the most emphasis on improving levels of STP, while banks are placing the least emphasis on this area.

While equities and FX have high levels of STP in Japan, less attention has been paid to improving derivatives, fixed income and cash processes. OTC derivatives in particular have grown significantly among traditional buy side investors such as pension funds. This growth, increased cross-border trading and the adoption of advanced execution technologies are placing further pressure on firms to improve operations in the middle and back offices.

However, while the demands placed on post-trade processing infrastructure have evolved, the tools needed to support this change have not. The report reveals that while the transaction flow between systems has been automated, little progress has been made in automating workflow for exceptions handling or corporate actions.

Neil Katkov, senior vice president of Celent’s Asia Research group and author of the report, said: “The survey shows that STP is lacking in over-the-counter derivatives, which have seen increasing volumes in Japan among traditional buy side investors such as pension funds, and this is challenging firms to develop methods for processing them efficiently. Firms also tend to overestimate the STP levels in their operations, partly because they tend to not include exceptions handling or workflow issues in their definition of STP.”

Richard Cummings, Regional Director for SmartStream in Asia Pacific, commented: “The Celent research highlights some critical operational issues for Japanese firms, particularly with regard to exception management’s role in the STP flow. In our experience many firms tend to take a ‘wait and see approach’ to their infrastructure, preferring wholesale change to incremental changes in IT. However operational risk concerns in the current financial climate may act as the catalyst for firms to introduce greater levels of automation. Simply throwing more people at the problem, as 34% of respondents to this survey are, is not a long-term solution.”

“SmartStream’s Japanese customers are already benefiting from our approach to automating reconciliations operations with our industry–leading solutions. There’s unquestionable value in these firms and others now implementing our workflow-based exception processing that drive out operational risk and cost from operations. Working with our local partners we aim to continue to introduce a broader range of TLM solutions for Japanese firms, enabling them to become more efficient and cost-effective, whilst also providing the scalability and flexibility to plan for tomorrow’s operational needs.”