OUTSOURCING POST-TRADE

Outsourcing to cut costs is a practice plenty companies put in place for a diverse range of services. Now Financial Institutions are also considering and actually implementing this practice in Post-Trade processes.

After all, who wants to monitor the labor-intensive work that comes after the trade execution, moreover if it can be contracted out to specialists? It’s generally understood that this type of outsourcing can reduce operating costs, address regulatory compliance requirements, and essentially, free asset managers to concentrate on their real business - earning money for their investors.

As you can see there are several reasons for managers on deciding to outsource post-trade processes, let´s get deeper into it:

Costs reduction
Outsourcing gives the companies the possibility to take advantage of industry technology as automated trade matching, messaging and cash transactions without the cost of investing on them directly. This allows managers to cease the expenses to providers who can focus their technology efforts efficiently for the benefit of all their clients. Hedge funds explicitly, find it easier to set aside costs directly back to the funds they manage if they outsource the process to a service provider. Last but not least, cost effective scalability in a market where the need for building up returns may require the flexibility of trading larger numbers and varieties of OTC derivatives, for that outsourcing would be a good option.

Service Quality
Companies can take advantage of service providers established relationships with sell-side back office and the connectivity already in place when outsourcing.  
On the other hand for some managers, even if OTC derivative trading isn't a primary activity is a relevant one. For these managers choosing to outsource can allow key personnel to focus on the most important aspects of their business. This can be true for hedge fund managers as well as for corporate treasures, etc. Guarantee a better decision making in real-time and a better management of the collateral for the securities. With outsourcing managers will handle more information and with comprehensive information the buy-side is able to provide higher quality service.

Increasing Control
Companies get pressured by institutional investors and regulators to provide transparency and independent verification of asset existence and valuation required outsourcing will get rid of this pressure and the service providers will take care of it.
The desire for independent risk measurement and limits monitoring from companies will be fulfilled as well as the required transparency to fulfill fiduciary responsibilities from boards of directors, Chief Risk Officers and other governing bodies.

There are already several companies giving outsourcing services in the market, for instance; Northern trust, First source, SS&C GlobeOp or Accenture. But regardless of just how much of the trading operations desk the fund manager decides to outsource or how much monitoring it wants to undertake, fund management trade operations and external service providers all agree on one thing. As efficient and cost-saving as outsourced trading operations can be, it’s not for everyone. As with any kind of outsourcing, fund managers will have to examine the opportunity carefully before buying in.