Trade lifecycle needs urgent transformation to boost efficiency

Strategic rethink required to transform trade lifecycle and overcome headwinds in capital markets

by | November 17, 2021 | Broadridge Financial Solutions

Capital markets firms must assess their front, middle and back-office technology stacks, and be prepared to apply transformational updates to help them improve efficiency and productivity. In turn, this will enable them to tackle the myriad of headwinds they are facing both in the short term and beyond, according to Broadridge Financial Solutions.

Currently, firms are struggling to deal with a build-up of outdated technologies plastered on top of one another, and which operate differently across asset classes and geographies, says Vijay Mayadas, president of capital markets at Broadridge.

“Most firms have built up very complicated technology stacks across different asset classes and across different parts of the trade lifecycle,” Mayadas says. “That’s led to what we call a ‘spaghetti phenomenon’ where you have lots of different types of technology stacks across different asset classes, geographies, different software and hardware, and different architecture to manage your business.”

The problem with this is as technology in the trade lifecycle evolves at a rapid pace, with things like algorithmic trading becoming increasingly common, technology stacks need to be simplified to reduce the pressure on firms and improve efficiency, while being better able to adapt as technology moves forward in the future.

However, firms have struggled with this issue for years. Despite being aware of the problem, they have been unable to effectively tend to it as short-term headwinds in the form of margin compression, regulation and operational resilience have forced action to be taken elsewhere.

A report by Deloitte found that in derivatives trading, firms had mainly tried to cut costs as a result of the challenges they were facing rather than focusing energy and investment on improving front to back technology. As a result of honing in on technology developments, those firms could have benefited with a 50-80 percent cost saving.

“As their businesses have grown there’s been much more of a focus on building new tech to drive new revenue,” says Mayadas. “This maybe makes a lot of sense but it’s been a bit of a struggle trying to figure out how to simplify all of these tech stacks and not just keep building on top of them.

“The feedback we get when we talk to clients about the trade lifecycle is that they’ve been trying to do this for a long time but it’s really complex. It’s had mixed success for them but their business is pressured in other areas too.”

Gaining C-suite consensus

As a result, it has been an uphill battle to get the C-suite on board to appreciate the value of thinking in a slightly different strategic direction and ultimately, releasing funds to invest in the trade lifecycle. Mayadas argues that its crucial to get consensus across an organisation before making progress.

“It should be part of a much broader digital transformation journey,” Mayadas says. “Once there’s consensus built by having a robust business case that doesn’t look at just cost efficiencies created by front and back integration but also revenue opportunities, you can build a compelling case for change.”

“Step number two,” Mayadas adds, “Is to really zero in and start small with some sort of bite-sized pain point. That way you can get a quick win and really demonstrate to your stakeholders that you’re creating an obvious upside.”

Away from the C-suite, Mayadas believes transforming the trade lifecycle could have perhaps an even bigger impact on the staff that deal with the technology on a day-to-day basis.

“It means firms can really free up the capacity of their existing staff,” he says. “They can spend time doing more value-added activities like mining the data for greater intelligence, like investing in implementing things like AI.”

“It’s an opportunity to re-skill and reorient, to drive more and more revenue growth and ultimately return on equity for the funds.”

In May 2021, Broadridge announced the acquisition of Itiviti to help strengthen its offering to clients and make it easier for them to use a single technology provider in the trade lifecycle.

Mayadas believes the Itiviti acquisition allows Broadridge to do just that, becoming a vendor that can invest in driving deeper integration across the trade lifecycle. In addition, the acquisition means Broadridge can start to reach out more comprehensively across the globe.

“Broadridge has a very strong post-trade footprint in North America and Itiviti has a much stronger front office footprint in Europe and EMEA. We think that our post-trade presence can help upsell Itiviti to existing clients while Itiviti’s front office presence can help those firms who want to consolidate and simplify front to back.”

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