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Streamlining the Full Trade Lifecycle Through Modularity & Interoperability

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For broker-dealers, collapsing technology silos across the front, middle and back office has become increasingly important in the relentless drive towards cost reduction and greater efficiency. As technology has advanced, forward-looking firms are taking an enlightened approach to technology development and investing in consolidation across the entire trade lifecycle. Not only does this present an effective way to improve workflow efficiencies, but it can also result in significant cost savings over time. An effective way to achieve such consolidation is by adopting a component-based approach to technology, which offers both modularity and interoperability.

The need for integration

With sell-side firms often having to manage multiple disparate, disconnected systems for each point within the trade lifecycle, there is a growing demand, particularly amongst large banks, for increased front-to-back office integration. In today’s environment, where the focus is on improving efficiencies and reducing costs, firms are seeking to combine capacities and infrastructure wherever possible, thus reducing both the number of costly vendor relationships that they have to maintain, and the associated complexity.

Investment in modular, interoperable technology is key to collapsing silos in the front, middle and back office, as it allows firms to target their efficiencies around specific functions and workflows. But even the most flexible modular system will not provide value if components cannot share information, both with each other, and with third-party tools. In order to create a true ecosystem of productivity, market participants should seek interoperable applications for every task across the full trade lifecycle.

A complex ecosystem

On the sell side, the full trade lifecycle covers everything from pre-trade through to post-trade. This includes the management and execution of the order in the front office, the allocation, affirmation & confirmation processes in the middle office, and post-trade functions such as clearing, settlement, transaction reporting, P&L, and general ledger accounting. On top of all that, risk management, asset servicing, margin calculations, collateral management, compliance, and a wide range of other supporting services need to be factored in.

This is a complex ecosystem, where firms are generally being serviced by multiple vendors, each focusing on a different area within the lifecycle of the trade. When connecting all of these systems together, firms generally either try and do it themselves, which can be resource-intensive and time consuming, or rely on the vendors of those systems to do it, which can lead to unwanted delays and further costs. The net result is multiple integrations, all of which have to be maintained.

This presents a clear case for streamlining, says Justin Llewellyn-Jones, Head of Capital Markets, North America (Equities, FX & Derivatives) at Broadridge Financial Solutions. “If you can streamline the ingestion of trades into the middle office from the front office, and into the back office from the middle office, if you can make sure that every single one of those systems is consuming the same reference data and the same real time data, you’re a long way towards getting rid of the breaks that occur,” he says. “Probably one of the most difficult challenges in financial services technology is integrating between all of these different systems, so if you can streamline all of that, you can achieve a much higher STP rate, and you’ll also get rid of many of the reconciliations that have to occur between systems, which is where a lot of inefficiencies are.”

This is where modularity and interoperability come into play. Taking a modular approach to software by breaking up a system into independent, loosely coupled components can provide clear benefits when streamlining the trade lifecycle. Technology teams gain the freedom to build and reconfigure tools as they see fit, across the front, middle and back office. And because it is quicker to build individual components than it is to rebuild an entire platform, modular systems are not only faster to market, they also offer greater potential for customisation. Taking a modular approach is also cost-effective, as components can be reused and re-purposed.

Interoperability and the sharing of data can be achieved by having a common, ‘golden source’ data model, wrapped with APIs, says Llewelyn-Jones. “You have this linear lifecycle right now,” he says. “From the point of order capture, a trade gets passed through all of these steps, and then you get this pool of data at the backend. If you really want to optimise your inventory, your collateral, your risk, or your capital allocation across your trading strategies, surfacing that golden source of data, from the back office into the middle office and into the front office, gives the traders actionable data items that they can use.”

A Hybrid build and buy approach

When applications are built in a modular and interoperable way, communicating and sharing data with one another, the entire trade lifecycle can be effectively streamlined. As long as all elements are interoperable, a firm can leverage functionality from any combination of providers to build a truly optimised workflow throughout the trade lifecycle. And because the technology enabling this exchange of information is entirely separate from the components themselves, it can be deployed in any context, with transformative results.

By building interoperable systems – and by working with vendors committed to modularity and interoperability, such as Broadridge – firms can benefit from the best vendor functionality available while keeping their core competencies in-house.

This hybrid build-and-buy approach will help usher in a future in which the front, middle and back offices are fully integrated, and the full trade lifecycle is truly streamlined.

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