 Marianne Brown
President and Chief Executive Officer
The middle office was traditionally left out in the cold in comparison to the board level attention once given to the front office, but the collapse of Lehman in 2008 put an end to that. Post-trade topics have firmly secured their presence in the boardroom. Typically, ownership of this topic tends to be CROs and CTOs, but the subject can often venture as far up as the COO. This is because a robust middle-office is seen, particularly by policymakers, as an area where credit, counterparty and operational risk can be measured and reduced. It is also viewed as a significant enabler in providing greater transparency to investors across the trade life cycle.
More than ever, market participants must demonstrate that they have both an accurate and holistic view of their collateral exposures, as well as the ability to measure their counterparty risk at any given moment. In the boardroom, conversations around risk management are a common topic. Often these conversations involve Audit Committees, who may be responsible for identifying the company’s risk profile and, with the support of management, ensuring the business has reporting and metrics capabilities to stay within that profile.
Often, high volume and complex asset classes are still being recorded and confirmed in excel spreadsheets, via email or fax. These methods typically do not satisfy the risk management goals and requirements for the business around timely, clear and succinct information about counterparty, asset or market risk. Risk exposures must operate within the pre-defined limits set by the firm and as a result of this, the management and mitigation of risk via an automated middle-office is now firmly on the board’s agenda. Although regulation may not mandate specific processing requirements, the timeframe for calculating and reporting risk, while enabling an accurate audit trail, makes automation inevitable.
Despite this, there is still a great deal of divergence in how the middle office operates across geographies, asset classes and firms. This impacts and influences discussions about investment in post-trade infrastructures. In the absence of harmonized regulation, for example across buy-side and sell-side firms, there is a lack of commonality in the drivers which rationalize and standardize behaviors relating to the middle-office. The buy-side and sell-side are not subject to the same regulatory requirements, and this has created a significant difference in levels of post-trade investment between these market participants.
Over the next 12 months, we envision that market participants – including the board of directors at firms – will be working even more closely with global policymakers, regulators and their peers to ensure that standards, workflows and processes are developed in tandem with industry and business needs.
First appeared on TABB Forum, 8 August 2011
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