The report argues that formal measurement of efficiencies in wholesale financial markets is less developed than in other industries. Now, as pressure increases on banks to reduce operational costs, they should look at how to regain control to cut overheads.
In today's commoditised trading environment, less and less profit can be squeezed per ticket, as trading volumes soar. Banks therefore need to reduce processing costs in the back office. Currently, on average around 50% of the cost per trade is tied up in processing inefficiencies.
The whitepaper outlines the operational activities, the cost drivers and the metrics that should be factored into any successful cost per trade benchmarking exercise. Additionally, it explores the methodology that heads of trading operations at banks should adopt to accurately evaluate operational competency.
Successful application of benchmarking is demonstrated by two case studies in the paper. A major FX bank greatly increased its trade capacity and increased STP rates to over 99%, reducing the cost per trade from Â£2.60 to Â£0.20 - saving millions of dollars a year. Another rapidly growing player in the FX market, TD Securities, reduced its operational costs by eliminating manual processes, lowering headcount and subsequently doubling its trading capacity to 15,000 trades per day in the last five years. Both organizations now measure their cost per trade on a formal basis.
The whitepaper stresses how important it is for banks to take these measures to gain the most value from their trading operations. By doing so they can analyse their strengths and weaknesses against peers, gain a more comprehensive view of the way the market is moving, provide measurable targets and validate costs to the front office.