About a-team Marketing Services
The knowledge platform for the financial technology industry
The knowledge platform for the financial technology industry

A-Team Insight Blogs

Middle Office Cinderella Finally Getting its Day in the Spotlight Due to New Transparency Requirements, Says Op Risk Panel

Subscribe to our newsletter

The new transparency requirements that are being mooted as part of the MiFID review process by the Committee of European Securities Regulators (CESR) have resulted in a surge of interest and investment in the middle office, according to panellists discussing operational risk at last week’s Xtrakter user conference. Godfried De Vidts, director of European Affairs at Icap, explained that the need for a more harmonised approach to the post-trade space is being highlighted by the push for greater data transparency and the fragmentation of the clearing environment with the addition of new central clearing counterparties (CCPs) on the scene.

In order to keep costs and operational risk down to a minimum against a background of increasing trading volumes and the requirement to connect to a host of new participants, firms are being compelled to invest in the middle office. The European Commission’s push to create better infrastructure for the fixed income and derivatives markets is therefore causing a serious number of challenges for financial institutions currently suffering with a multiplicity of siloed middle office systems, noted De Vidts.

Nicholas Hamilton, vice president of European Fixed Income Transaction Management at JPMorgan, added that trade matching is a particular area of operational risk for many. “There is not a single vendor product out there that offers all the functions that are needed for the full trade lifecycle,” he said. “The STP of trade matching is the main non-economic challenge of this space at the moment.”

The proliferation of data standards within the middle office space is also proving challenging, noted Simon Bennett, senior consultant at HSBC. “The middle office has traditionally been the Cinderella stuck between the two ugly sisters of the front and back offices,” he joked. Not enough investment and attention has been paid to the middle office traditionally and this is exactly where the compliance challenges of today’s markets are being faced, he added.

The financial crisis has also refocused regulatory minds on the need for faster settlement cycles. Although the debate is not about T+1 as it was a few years ago, the focus is now on T+2 at a European level. De Vidts noted that the regulatory community is likely to move with lightning speed to implement this requirement as part of its overall review of the market, potentially tied in to the Securities Law Directive. “This will be a shock to those still using faxes or pigeons,” he quipped. On a more serious note, the panel agreed that these changes will put significant pressure on risk and cash management systems, as the historically lengthy cash management process would need to be considerably shortened.

Transaction reporting for the derivatives and fixed income markets will add to the overall middle office challenge, agreed panellists. Hamilton noted that JPMorgan has already invested in supporting its transaction reporting process by establishing a centralised repository for the relevant data. JPMorgan, along with UBS, has been one of the front runners in tackling this particular space and has since reaped the benefits of keeping one step ahead of the regulators (others have not been so lucky, see BarCap’s fine last year for proof).

De Vidts pointed to the securities reference data utility that has been established in Frankfurt for transaction reporting data as an indicator of where the industry as a whole is heading. “There is the real danger of garbage in, garbage out in terms of the data held in these repositories,” he warned.

Hamilton expressed his appreciation for the establishment of central repositories for this data, however. “We are aware of the challenges involved but are supportive of common denominators being established for this data across regions,” he explained.

Subscribe to our newsletter

Related content

WEBINAR

Recorded Webinar: Best practices for data lineage and metadata management to support evolving data operations

Data lineage is key to tracking data from source to consumption and any changes to the data along the way. Metadata management provides governance and control, ensuring high quality, consistent and accurate data across a financial institution. It can be used at all levels of an organisation from the C-suite to data stewards, analysts and...

BLOG

SteelEye Raises $21 Million in Series B Led by Ten Coves

Communications and trade surveillance platform SteelEye has raised $21 million in a Series B funding round led by Ten Coves Capital and including existing investors Fidelity International Strategic Ventures, Illuminate Financial, Beacon Equity Partners, and a large family office. The round – which takes SteelEye’s total capital raised to $43 million – will be used to fund...

EVENT

ESG Data & Tech Briefing APAC

Join us in one of the greenest cities in the world as we bring together thought leading ESG specialists to explore how financial institutions are adapting to the evolving ESG regulatory and market infrastructure.

GUIDE

Regulatory Data Handbook 2022/2023 – Tenth Edition

Welcome to the tenth edition of A-Team Group’s Regulatory Data Handbook, a publication that has tracked new regulations, amendments, implementation and data management requirements as regulatory change has impacted global capital markets participants over the past 10 years. This edition of the handbook includes new regulations and highlights some of the major regulatory interventions challenging...