Smarter Operations – Is Middle Office the New Front Office?


Chris Wells – Head of EMEA Middle Office, Nomura
Cathy Lyall – Co-Founder at Seismic Foundry
Julie Carruthers – Head of Operations, Global Broking, TP ICAP
Julian Bennett – ETD Product Strategy Director, Nex Traiana
Simon Vincent – Head of Strategic Accounts – FS UK&I, Software AG

Hosted by The Realization Group

For more in-depth discussion read our Financial Markets Insights article


Many middle-office systems at banks and brokers still rely on a mishmash of spreadsheets and legacy systems, some of which have been in need of modernisation for years. How can firms embrace technology to improve efficiency and reduce costs in this area?


Mike O’Hara: Hello and welcome to Financial Markets Insights.

Many middle-office systems at banks and brokers still rely on a mishmash of spreadsheets and legacy systems, some of which have been in need of modernisation for years. This is hardly an optimum state of affairs and it can have a severely detrimental impact on workflow, efficiency and ongoing costs.

So why does this situation still exist, and how much of a problem is it?

Julian Bennett: A lot of the problem tends to be around the legacy systems, but more because they cost a lot of money, the costs of change is relatively excessive, it creates inertia to stay where they are, rather than to innovate and they don’t necessarily want to be a differentiating space. It doesn’t give them any revenue benefit necessarily, or it gives them limited revenue benefit. So, making changes in that space has become quite costly, unless they can identify an additional benefit and those platforms themselves tend to be really quite old and creaking old technology, old ways of working.

Chris Wells: We’ve gone through incredible change, regulatory-driven change and there’s been a lot of reactionary work. So, that has compiled onto heritage systems. And, to move that quickly, some of it’s been manual, some of it’s been tactical and that’s happened over quite a few projects.  So, firms are at the risk of being left with a myriad of day-one solutions that they kind of look to fix on day two, but then another day one comes along on another project, so left with processes that are not that transparent, difficult to track, people running report-based solutions, running semi-automated solutions that get you halfway there, but then manual left on top of that.  And it’s the unwind of that, which becomes a great challenge. If you don’t get that right, then you’re left with a lot of errors on T0 that manifest themselves downstream and externally on T1, including now, much more stringent regulatory reporting.

Mike O’Hara: Ensuring data is correct and reconciled for further downstream processes such as regulatory reporting, is an essential function of the middle office. So why is it so hard to get right?

Cathy Lyall: The challenge is very much around cross-regulatory jurisdiction, cross-asset class, cross-currency, how you’re managing reporting. Look at something very simple, like regulatory reporting requirements of exchanges from their members.  So, if you’re a large investment bank that’s active in most markets globally, you will probably be in between 60 and 120 different markets across equities and listed products. Every single one of those exchanges will have different reporting structures. Some are daily, some are weekly, some are monthly, as will the regulators in those jurisdictions.  So, you could be facing up to 30,000 separate regulatory reports being delivered to exchanges and their regulators in those national entities on a monthly basis. And virtually none of those will have the same format or the same structure or the same inputs.

Simon Vincent: In many ways, I don’t think people understand where improvements can be made.  Now, whether it be manual processes that can be improved through just smartening them up, whether it can be technology can be sped up, better use of what’s existing there can be used better. The challenge I have is I’m not sure people understand completely what’s going on.  And there are a number of reasons for that. Like most companies, they’ve grown through acquisition, potentially, and obviously then, from the point of view of requirement. So, system on top of system, on top of system.  Some of them, although work, they might not be working together as efficiently as they can. Now, whether that’s a simplification of IT or whether it’s a simplification of process, that’s where I’d come back on that question.

Mike O’Hara: Given this landscape of heavily relied upon legacy technologies and manual, what are some of the steps that banks and brokers can take to improve efficiency in their middle offices?

Simon Vincent: I’d look at it from, again, to touch on the mindset, if you change the mindset about using process mapping tools.

The most important thing is to try and capture who does what, why, what happens if this and going on from that point of view.

It’s not always a newer version of an old system that’s going to improve things. It’s potentially keeping that system as is and understanding how better to use it.

Julie Carruthers: If you have a legacy architecture which is numerous systems, one of the main things you can do is automate that as best as you can. So we’re currently looking at artificial intelligence to automate processes that people do in those different systems. So where that makes sense, we’re exploring it. The other thing is investment in new technology. I’m sure it’s the same for the other brokers and the banks: a lot of the technology is now starting to get old. So I think you’ve got to have a view that if you can replace the technology and upgrade it, great. That gives you the automation and the better process, one would hope. If it’s something that is so plumbed into your wiring that you actually don’t want to extract it, that’s where I think the AI and the process excellence and all the automation comes in. But I think there’s a best of both worlds that exists.

Julian Bennett: We need to take a step back, be less threatened by competitors, start talking collectively between exchanges, CCPs, the brokers, the vendors and technologists out there, Fintech. Right the way up to the bigger vendors and start saying, “Well actually what is it that we can really do with this space for the benefit of everyone?”

Mike O’Hara: For the firms who get this right, the potential benefits can be significant.

Cathy Lyall: I think there will be things all along the value chain, whether it’s at the execution piece, middle office or back office. But let’s focus on that middle-office piece, which is what we’re talking about today.  I think you’ll see improved efficiencies in the way processes are performed. I think the big thing that will happen is data is going to be managed much more effectively and compliance, risk management solutions that will allow the teams to be able to have a very good holistic view of everything across the board, they’re out there already.  We’ve seen several companies that can manage data in a very… You know, they’ve got smart bots in the middle of things and they allow you to manage your data in very clever ways that give you very good views into your risk, for instance, or into exceptions across your organisation, across asset class, across regulatory jurisdiction. They’re able to take unstructured data in different ways and formulate in a way that allows you a very good view of your true risk position as an organisation globally.  What can that do? It should be able to free up collateral. It should help you make quick decisions if you’re in good trades or bad trades, for instance, or if you need to deploy funds elsewhere quickly.  It will also help the teams on the ground focus on what they need to do day to day, which is managing the customer experience, which is something that has been lost the last five or ten years, as we’ve been really caught up in trying to solve a lot of the regulatory issues that have been facing us.  So, I think the future for us over the next five years or so is going to be a much better experience for the customers that’s being enabled by this technology.

Chris Wells: My dream around this is you kind of get the middle office where you can look at your iPhone and it’s telling you kind of via a dashboard solution that you’re going to have a problem in an hour if no one does anything. And certainly, the cloud is the mechanism for that. If you get to the stage where you’ve got the right mapping for your key processes on a time basis as well as process basis, then that actually becomes a reality, which for years, that’s been the pipe dream of how we’ve wanted to operate.

Mike O’Hara: This may have been a pipe dream for years, but it’s starting to become a reality. And the banks and brokers that are able to introduce these smarter operations into their middle offices are reaping serious benefits. Whereas those that continue to rely too heavily on legacy technology and manual processes will not continue to suffer from inefficiency, high costs, and unnecessary risks.

Thanks for watching. Goodbye