The ﬁnancial securities market incurs about 80% of the total cost associated with trade processing in exception management. Competitive pressure has led majority of the back oﬃce service providers to turn to Straight-Through Processing (STP) to increase speed and eﬃciency. This reduces both risks and costs associated with trade processing. It is also necessary to have a robust performance management and performance reporting system in place if businesses wish to to ensure better governance, visibility, transparency, streamlined business processes, and proﬁtable growth.
Simplify with STP
In the securities industry, STP has been aggressively used for a wide range of technologies, products, and business objectives. The objective is well understood—to increase eﬃciency of trade processing to enhance customer service, cut costs, and increase proﬁts. Despite signiﬁcant IT investments, there is lot of room to improve at every stage of trade processing—from order initiation to settlement. The back oﬃce service providers need to constantly monitor operations, identify bottlenecks, and take corrective measures.
To successfully attribute any exception during back oﬃce trade processing, it is imperative to benchmark tasks and measure their performance. Any deviation necessitates further investigation and provides scope for improvement. The conclusion is that any system that provides meaningful performance benchmarks, appropriate tools, minimum service requirements, and information to monitor and manage business result will deﬁnitely add value to the end client.
This paper analyzes a system that monitors complete back oﬃce operations with regard to trade processing. It also evaluates robustness of processes and employee eﬃciencies to manage the end-to-end transaction lifecycle and yield optimum results at competitive costs.
Challenges to Smooth and Eﬃcient STP Implementation/Knots in the Chain: Why STP Implementation is a Challenge
The concept of Straight-Through Processing (STP) is not new. STP is seamless, electronic, end-to-end processing that encompasses the entire life of a transaction or a business support process. It spans the entire ﬁnancial markets value chain—from execution through settlement and reconciliation. It enables the entire trade process, for capital market and payment transactions, to be conducted electronically without manual intervention, subject to legal and regulatory restrictions.
With millions of dollars lost after the collapse of Lehman Brothers, industry demanded better collateral management. Industry initiatives required ﬁrms to consider smarter ways of using the limited collaterals available. Financial institutions were forced to focus on counterparty credit risk and the wide use of derivatives in the collateral management process. Regulatory changes also called for additional collateral and margin requirements for large and complex derivatives. The implementation of global regulations emphasized the automation of collateral management systems in order to manage them with ease. Automating collateral management systems mitigated systemic risk and increased transparency in Over-the-Counter (OTC) trades, and pre- and post-trade ﬁnancial transactions.
With the number of participants involved in completing a trade transaction, it is important that all of them achieve high level of STP. However, it is extremely diﬃcult to achieve enhanced eﬃciency in today’s electronic and automated marketplace due to several factors:
- Continuous inﬂux of new ﬁnancial products with complex processing needs
- Rising trade volumes given greater participation of retail and institutional investors
- Signiﬁcantly smaller lot sizes
- Low margins, making every error extremely expensive
Operationally, there are far too many touchpoints between order initiation through execution and settlement, increasing the possibility of errors and the cost of manual intervention. With the proliferation of new products and multiple reference data providers, it is an added challenge to ensure data consistency between order initiation and settlement. The challenge is a much bigger one for global market service providers. There are multiple regulatory and compliance requirements which require investment processing ﬁrms to spend on resources. This in turn shifts the focus from improving operational challenges with trade processing.
Fig 1: Challenges with End-to-end Straight-through Processing
Raising the Bar on Performance Management
Quality and performance management serve as ‘centers of excellence’ to an organization by providing reliable, accurate performance data on key business processes. Eﬀective quality management enables an organization to examine its processes end-to-end. It also enables more eﬀective, fact-based conversations with market units, solution groups, and external clients. This in turn results in improved Service Level Agreements (SLAs) and enhanced client satisfaction.
In the investment processing industry, getting an insight into the performance of the services being oﬀered to clients is the key reason for it to be outsourced. The goal is to broaden the areas of focus to include measurable elements like accuracy, productivity, volume, and timing. The service provider should provide the mechanics to analyze every error/exception; enrich the exception with reasons; and enable the conversion of data into information. This must be done consistently for management reporting, internal quality assurance, analytics, and forecasting.
The service provider often has multiple functional areas including various back oﬃce tasks for clients. Many of these functional areas are transaction driven, supporting and managing millions of transactions per month. The transaction data is usually pulled from multiple systems or manually captured. In such cases, data errors and exceptions are a common occurrence. Therefore, data needs to be sanitized and organized in a form that can be easily analyzed and presented to the management.
The business beneﬁts of such a system are immense. It enhances the client experience by timely and accurate measurement of service performance data.
Building Blocks of an Eﬀective Performance Management System
A well-oiled performance management system needs to establish standardized processes for measuring service performance by capturing, enriching, and converting exception data into productive information. The core logic of such a system is based on three levels of data :
- Functional Process Metrics:These metrics capture all incidents and exceptions that are inherent in each process that makes up the measures (accuracy, productivity, cost, volume and timing).
- Enrichment Coding:Reduces the manual eﬀort of adding research clariﬁcation to an exception, such as an incident type, and the reason for root cause analysis, and controllability.
- Parsing of Data:To enable data conversion for analytics, the system should serve as a scorecard, and benchmark the exception data in an automated fashion. This will save several thousand man hours wasted in manual data preparation leading to higher service quality and improved customer loyalty.
The common components of such a system should include the following:
- A user interface for maintenance of master data for entities related to exception
- A user interface for exception enrichment
- An ‘approval process’ workﬂow for enriched and wrongly assigned exceptions
- A user interface for the user administration module that deﬁnes user roles, team mappings, and their function points. The system should support role-based security at data level, report level, and screen level.
Planning for a Robust Reporting System
The ultimate goal of a performance reporting system is to ensure that it automatically extracts pertinent exception data from appropriate systems, enriches this data with reasons, and enables its conversion into actionable information.
This must be done consistently for management reporting, internal quality assurance, analytics and forecasting. Typically, performance management and exception reporting can be done at four diﬀerent levels:
Productivity: Productivity reporting can be done at multiple levels depending on the client’s preference. Basic reporting involves total active accounts per operation for a particular time interval. Potentially useful information can be obtained by reporting productivity at team level or at transaction level. Reporting should be customizable on daily, monthly, or quarterly basis.
Accuracy: This metric indicates the count of total controllable exceptions occurring per transaction. Reporting can be done at multiple levels—individual, team or business unit— and for multiple periods—daily, monthly, or quarterly.
Incidents: Incident reporting aims at identifying the count of total reversals and the reasons associated with it. Reporting can be consolidated for all clients or done separately for each client. It can be done at multiple levels—individual, team, or business unit—and for multiple periods—daily, monthly, or quarterly.
Volume: Volume reporting displays total count of transactions at daily/ weekly/ monthly / quarterly periods for past one year. This reporting too can be done separately for business units, teams, and clients.
A Solution to Delight Customers
Coforge has developed an integrated solution that signiﬁcantly improves the customer experience. This is made possible by measurement of timely and accurate service performance data to meet speciﬁc requirements. Our four-step Performance Management and Reporting System (PMRS) allows for all incidents to be easily captured, controlled, and reported through a seamless workﬂow:
- Capture All Incidents and Volumes: Most organizations have high volumes of incidents and exceptions in the system during trade processing. Yet they often fail to identify the root causes for such high volumes of incidents and establish preventative actions, manually. Using the Coforge solution, incidents captured in the ﬁrst step are classiﬁed into various exceptions. Every error (exception) is analyzed and validated with reasons. The data is then converted into information that can be used for management reporting, quality assurance, analytics, and forecasting.
- Classify Exceptions, Incidents:Our solution securely reports on the quality, accuracy, timeliness, cost, and FTE eﬃciency measures of current exceptions data.
- Report Generation and Analysis
- Publisher/Dashboard: It enables users to view information in the form of user deﬁned ad hoc, canned reports and dashboards in its end state.
Toward Greater Proﬁtability with PMS
As exception/error volumes rise in trade processing, it is not viable to rely solely upon manual intervention as the ﬁrst line of defense. In the current market environment, where there is a premium on cost reduction and lowering risk, it is imperative for ﬁrms to actively consider the implementation of an eﬀective performance management system (PMS).
Several global organizations rely on third-party vendors to meet their complex and dynamic requirements at low compliance cost and to deliver strong management processes. By using these solutions, organizations report recorded exceptions to ensure better governance, visibility, and transparency. It also drives proﬁtable growth by delivering predictable results, improving conﬁdence and compliance, and streamlining business processes.
Coforge’ Value Proposition
Strong Industry Focus, Experience
At Coforge, we have managed more than $1 trillion Assets Under Management, engaging with more than 1.5 million end users. We have considerable experience in front oﬃce, middle oﬃce and back oﬃce operations. The Datamonitor Black Book of Outsourcing 2010 survey ranks Coforge Number 1 in Data Management Services in the overall satisfaction ratings. Our team has deep understanding of major industry leading products including Charles River, Calypso, Advent Moxy, Linedata Longview, MacGregor Investment Technology Group (ITG), Eze Castle, Omgeo, Bloomberg, Reuters, and Yodlee solutions such as “Yodlee Account Data gathering”.
Our oﬀerings span business and technology consulting, application development and management services, IT infrastructure services, and business process outsourcing. Our services to customers and partners across the world have led to the evolution of a strong value-optimizing framework for oﬀering similar services through a cost-eﬀective delivery model that can be used in single-shore, dual- or multi-shore formats.
Mature, Best-in-Class Process Framework
Coforge’ software development centers are ISO 27001, CMMi Level 5, and PCM Level 5 accredited. Our resources are well versed with operating in a highly mature process oriented and secure environment and bring this expertise to all client engagements.
Access to Large Resource Base
We have a large resource base of over 5000 analysts and consultants and are able to quickly source professionals with matching skill sets for projects. We can also ensure a quick ramp-up of project resources as required.
About the Author
Vinit Sharma is a Business Solution designer within the Banking and Financial Services practice at Coforge. He has more than eight years of experience. His expertise includes Capital Markets, Corporate Finance, Credit Card, and US Mortgage business.
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