Unbundling of costs within Post Trade

Rob Scott | 2nd Post Trade Forum & Trade Show | Sep 2015
“Redefining Models & Understanding Competitive Advantage”
Unbundling of costs within Post Trade

1Rob Scott | 6th Annual Ops & BO Excellence in Bkg Summit | March 2015
1 Industry Backdrop
2 Leading Independent Research & Conclusions
3 Business Backdrop – Capital Markets
4 Collaboration & Partnership
Contents

1 Industry Backdrop
Converging Factors
Impact of regulatory & Market Forces
Contents

Front Office View
The market is developing at a
rapid pace. The ability to
recognise your differentiation
and adapt quickly in the cost
profile is becoming both crucial
and critical
This has led to banks’ interests
converging, especially in the
need to rationalise aspects of
business both front and back
which help to ensure cost
savings through the whole
value chain
Market conditions are forcing
banks to redefine their models
and exit unprofitable business
lines. No longer wil banks be
all things to all men, in all
markets and products.
Increased
Regulation
Technology
evolution and
dependencies
Investor
demand
Reduced
leverage
Increased
transparency and
interconnected-
ness
Convergence of
bank value chains
(execution &
post trade)
Convergence Factors in the Market
Emergence
of new risksEmergence of
disruptive
technologies

Impact of Market & Regulatory Forces on the Industry
The impact on the industry
provides much to think about
for C&M
Many assumptions built into
current planning should be re-
visited to ascertain whether
they remain valid or need to be
reassessed
Given volume is not materially
increasing. Margin
compression and competition
remain constant. The need to
tackle the cost base is the
primary focus of C&M business
lines. Industry trends towards
25-40% overall reduction
Capital, liquidity and Balance
sheet usage is forcing banks to
review their business models.
Demand for products &
services, generating new
revenues
Shift of existing revenue-
generating activities
between participants
Cost reduction efforts
creating revenues for
insourced solution
providers
Increased price
transparency on liquid
instruments
Unbundling of services
like research from
execution / brokerage
Burdensome capital &
funding requirements on
illiquid instruments
Likely growth of agency
models as market-makers
withdraw capacity
Increase in cleared
volumes, and clients
interacting directly with
CCPs, not via clearers IM requirements >$1tn
by 2018; collateral
management critical
Unlocking of dormant
assets held by institutions
& more demand for tri-
party repo
Core custody moves to
utility model; revenues
from trade reporting &
provision of BO services

1 Industry Backdrop
Macro Backdrop research papers
Moving up the value chain
Contents

External References
References Key relevant findings Found in
McKinsey&
Company
 ROE for Core Capital Market Businesses decreases from 20% Pre-
regulation to 7% Post-regulation, but increases to 11-12% Post-Mitigation
McKinsey& Company [2014] in
“Global Corporate and Investment Banking: An
Agenda for a Change” (p. 15)
Oliver Wyman  Firms re-aligning business models
 Securities Ecosystem in 2013 circa $330bn, $70bn post trading
Pressure on profitability
Capital, Balance-Sheet, liquidity and collateral constraints
Greater transparency
Conduct scrutiny
The Capital Markets Industry
“The Times they are a-changin’”
http://www.oliverwyman.com/content/dam/oliver-
wyman/global/en/files/insights/financial-
services/2015/March/The_Capital_Markets_Indu
stry.pdf
Boston
Consulting
Group (BCG)
 ROE in the CMIB industry fell to 11 percent in 2013, a decline of 1
percentage point from the previous year
 The industry ROE has not returned to its precrisis levels, and the range of
ROE outcomes for individual institutions has widened
 Transaction Banking 2013 revenues of $1trn ($750bn retail, $260bn
wholesale) to double by 2023
 Emerging markets to account for 75% of revenues
Boston Consulting Group (BCG) [2014] in
“Global Capital Markets 2014: The Quest for
Revenue Growth” via:
https://www.bcgperspectives.com/content/article
s/financial_institutions_corporate_strategy_portf
olio_management_global_capital_markets_2014
_quest_revenue_growth/?chapter=2
Boston Consulting Group (BCG) [2014] in “What
lies ahead in Transaction Banking? Insights
from the Boston Consulting Group (BCG)”
Pricewaterhouse
Coopers (PWC)
 A bank’s share typically trades at 6 to 8 times earnings. In contrast the price-
to-earnings ratio of a processing business is usually more than 20 times.
PricewaterhouseCoopers (PWC) [2009] in
“Transaction banking takes off“ (p. 5)

“Moving up the value chain”
Leveraging and Optimising Core Infrastructure
The importance of having an
effective integrated strategy
around post trade services is
critical.
Regulation is forcing more of a
“one stop shop” approach as
the inefficiency of having
services dispersed is too
costly. Particularly in terms of
Collateral and liquidity
management
Trade execution
Basic
Research
Post trade Services
Core Investment
Bank
Core Custodian
Key:
Safekeeping
Settlement
Cash
Management
Bespoke
Research
Primary
Markets
Access to IPOs /
Issuances
Hedge Fund
Consultancy
MarginalValueofProvision Capital
Introduction
Core services and potential expansions
Core Custody
Corporate
Actions
Custody
reporting
Custody
Advisory
IRS
Commodities
Credit
FX
Options
Equity
Derivatives
Structured
Products
Post-trade services
Depository /
trustee services
Margin
Financing
Cash FX
(Spot, Fwd)
Cash Equities
Basic Collateral
Management
Middle office
outsourcing
Bonds
Listed derivs
execution
Product Sophistication
Cross-
Product
Margining
OTC clearing
services
Issuing and paying
agent services
DMA
Listed clearing
services
Securities
Lending
Collateral
Transformation
Source: Accenture

1 Industry Backdrop
3 Business Backdrop
Macro Business summary
Emergence of Credible Providers & Alternatives
Contents
Market & Competitor Landscape Redefinition

Macro Business Consideration Summary
High Cost Income Ratios
Innovation and Change the Bank budgets challenged
Partnership, Collaboration, Cooperation agreements for success
Declining volumes, continued margin compression
Cost arbitrage of off-shoring exists but largely exploited
Aged Technologies
Inefficient process
Continued regulatory and market change
High fixed costs. Need to move to variable cost models
Chalenged business models
Need for less proprietary
thinking
Fundamental need to drive
costs and inefficiency out of
process
Consider combining or
partnering resource for
success. Ops/IT/Front Office

Macro Business Considerations
Entrance of non bank firms
with substantial capital
resource
Non business competitive
entrants
Outsourcing prevalent for next
5 years
Importance of Partnerships,
Collaborations, Cooperation
agreements by smaller players
to pool scale
Accenture
WIPRO
IBM
TCS -Bancs
Euroclear
Markit – KYC utility
Goldman Sachs – Colin
(Bilateral Collateral) Clearstream – Alfred
(Bilateral Collateral)
Bank Consortium – (Static
data)
DTCC – (Static Data)
CAPCO - FIS
Emergence of credible service providers to manage the cost challenge

Market & Competitor Landscape Redefining
During 2014, larger
competitors have tried to
create similar Market Services
businesses by combining a
wider range of services
Custody is often still separate
More competitors have brought
their OTC, ETD and FXPB
businesses together
Agency Derivative Service
(FXPB, ETD, OTC CCP)
Full post trade solution for
platinum clients only
ECLIPSE (Execution, Clearing,
Liquidity & Portfolio Services)
Agency Derivative Service
(FXPB, ETD, OTC CCP)
Full post trade solution for
platinum clients only
Combined OTC & ETD
Investor Services, inc:
ACCE (Agency Clearing,
Collateral Mgt & Execution)
Custody & Fund Services
Financing & PB (HF focus)
Sales
Combined Custody, prime
finance, sec lending, fund
services, ETD & OTC
Exited FX PB
New FXPB players
Collateral & Custody combined
Exited Clearing due to reg. delays
Frozen FX PB
ABN derivatives clearing combined
with NT Custody & Collateral
Service Provider Overview
Recent Market Developments
DB tie up with HP
DTCC-Euroclear
Global Colleteral Ltd
Goldman Sachs utility
for BiLateral Collateral
Barclays outsource
ETD to Sungard
Markit KYC Utility
Imminent
utility/outsourced
annoncments
Banks & OpenGamma
Bilateral Collateral
Outsourcing USD
82.9bn 2013

Contents
1 Industry Backdrop
Old/New Technologies : Key to Success/Path Forward
Ops & Technology Central to Success
Outsourcing considerations
Path for success

Old Technologies 25 years ago
Core Securities platforms 19-
25_years old
High dependency on manual
processing
Inefficiency in processes and
internal connectivity

New Technologies
Need for newer, scalable
technologies
Technology the driver and
differentiator of the future
Need for further automation of
processes and increased user
experience

Old Mobile Technologies

This is mobile technology today
We live in a digital age. Speed
efficiency, information and
transparency drivers of
success
Most modern day phones today
can perform more processing
than the computers 25 years
ago
We need to adapt and have
ability to be nimble in execution

Working in true partnership and collaboration. Business & Support groups
Client service models likely to change as more products are integrated together
more as business units redefine themselves
Clear delineation of roles and responsibilities ie, Collateral Mgt
Making client central to how we measure success
Timely response to changing support models. Being nimble and effective in
both our adaptability to change and nimble in our investments
Operations and technology central to success
Considerations
The need to continually challenge ourselves. Automate, proactivity. Willingness
to adapt
Quick identification and acceptance of key differentiation
Ability to move fixed cost into Variable cost models

Multi platform, Multi operating system support
Pre-Define services and how delivered
Pro-active monitoring and alerting tools
Implementation of latest industry standards and practices
Effective service level management and defined liability regime
Outsourcing Top 10 Considerations
Benefits
Regular and effective management meetings
Skilled Technical staff
Strategic partnerships
Comprehensive Documentation
Achieving significant ROI

Little support for client leaders
Poor understanding of contract
Client retained team not in place or too small
Client retained teams lack required expertise and skills
Loss of talent coupled with poor knowledge transfer
Outsourcing Top 10 Considerations
Negatives
Inability to meet pent-up demand for services
Post contract processes and decision rights not understood
End user resistance to adopting new processes/technologies
Culture clash client and Service provider
Changes don’t last, people revert, ROI challenges

In other words
Understanding differentiation,
not delaying redefining cost
base
Ensuring outsourcing is a true
partnership that lives and
evolves over time
Be wary of retaining suitable
experience, expertise and
watch morale
By adopting latest technology
and process, business and
client service can be
transformed.
Timeline
Continuity
Liability /penalty
regime
Relationship client
and provider
Process familiarity
What is the real
cost
Be careful to understand…………
Morale
prioritisiation
Control

The Path Forward
How Post Trade will become a “Business As Usual”, integral part of the bank
Understanding
Clients
Understand
differentiation
Cooperation
Agreements
Partnerships
Leveraging
what we have
Collaborations
Transforming
from a service
to a business
Remain
competative
through cost
control

Unbundling of costs within Post Trade

Recomendados

Recomendados

Mais conteúdo relacionado

Mais procurados

Mais procurados (20)

Destaque

Destaque (6)

Semelhante a Unbundling of costs within Post Trade

Semelhante a Unbundling of costs within Post Trade (20)

Mais de László Árvai

Mais de László Árvai (20)

Último

Último (20)

Unbundling of costs within Post Trade