Chris Smith, Trax
"Rather like the geology of our planet, post-trade has moved over the past 30 years through different eons..."
Financial markets are far from simple. Investing in them, working in them, and regulating them have all become more complicated in the past 30 years. Deregulation, globalisation and a drive for improved investment returns has led to dramatic changes in market structure.
However, the need for post-trade processes to improve efficiency and reduce operational risk remain constant.
In 1987, running a middle office operation for a large US investment manager, my goal was to prevent loss to our funds caused by failed trades. This was a simple measurement of operational risk. The world changed dramatically with the market crash of October 1987, and as a result, in 1989 the G30 published 9 recommendations aimed at improving the global financial markets.
By 2004, under Basel II, global regulators had more broadly recognised operational risk, and the G30 themselves re-issued their 1989 report, now containing 20 recommendations. As a result of events in 2008 we were forced again to think about the effect of operational risk, its impact and management.
In responding to these disruptive events, market participants (and more recently regulators) have called for the implementation of new practices and sought greater amounts of transparency.
In fact, we can consider each major market event to represent a change in the post-trade era.
Rather like the geology of our planet, post-trade has moved over the past 30 years through different eons: pre-1988 was the eon of manual workflow - paper was king; 1988 - 2008 was the eon of automated workflow - taking the manual and automating it. STP becomes THE acronym; post-2008 is the eon of verification and control - data accuracy and a demand for global transparency.
It is clear that as firms, including service providers like Trax, involved in the increasingly complex financial markets, we have the responsibility to ensure that the processes and procedures we implement are aimed at reducing failed trades, improving the quality of reporting data and, most importantly of all, reducing cost and risk. Verification of data, of trades, and of processes is now an essential aspect of post-trade if we are to manage and control operational risk.
Download the white paper here.