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Innovations in Trading and Technology

23 January 2013

Key Theme for Asian Middle Office: Automation

The relative efficiency of middle-office processing has become a means by which brokers can differentiate themselves from their competitors. And Asian capital markets participants are leading the way.

It is well known that Asia is leading the world in the proportion of trades achieving same-day affirmation (SDA); most Asian trading venues comfortably exceed SDA rates of 90%, whereas the U.S. trading venues currently achieve 70%, on average. The automation of middle-office processes in Asia’s securities markets continues to be implemented with great vigor. This trend is undoubtedly being propelled by forthcoming regulatory requirements; yet there are other factors also driving the development.

Clients are demanding ever greater efficiency, with SDA being seen as not only best practice but an essential requirement of broker-dealer service level commitments. It is evident that error rates and the operational costs associated with them could be radically reduced, and general settlement efficiency could be significantly improved, if all details of a trade are agreed to on the day it is executed.

Of course, automation gives other benefits to broker-dealers besides merely reducing trade failure. Other examples include more reliable trade allocation, the ability to accurately monitor one’s securities lending, and the automatic alerting of corporate actions.

[Related: "Reducing Risk by Strengthening Settlement"]

Recently, broker-dealers have found their clients demanding SDA, electronic confirmations and the streamlining of the settlement lifecycle. Accordingly, the relative efficiency of middle-office processing has become a means by which brokers can differentiate themselves from their competitors. A sell-side provider that proves its ability to handle increased volumes efficiently would likely attract further increasing volumes. With error mitigation, the provider can also help to keep costs down.

For brokers, the automation of post-trade processes is a no-brainer: It makes smart sense operationally and financially, and it is essential to compete and to comply with regulations. It also enables brokers to be better prepared in their processes for the inevitable future contraction of trade settlement periods.

Many Asian sell-side providers with automated middle-office processes not yet in place are urgently striving to implement them to gain a competitive advantage. Based on industry news, Australian market participants and Chinese firms are rapidly signing with system providers offering automated middle-office suites that can be implemented around existing processes.

With Asian capital markets participants seemingly leading the way in post-trade efficiency, it may only be a matter of time before electronic same-day affirmation and confirmation nears 100 percent, as would befit one of the world’s fastest growing regions.

Eric Wicart is senior vice president for SunGard’s Stream offering.

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