Ullink, the global provider of electronic trading and connectivity solutions to financial institutions, has released a new version of its middle office suite (UL Middle) which offers automated straight-through processing (STP) of equities, derivatives and fixed income assets, plus streamlined processing of allocations and confirmation/affirmation workflows using financial information exchange (FIX) protocol. Audit trail capture and reporting capabilities have also been enriched, to comply with the latest regulatory requirements, the company said.
SRP caught up with Richard Bentley (pictured), chief product officer, Ullink, who gave us the lowdown on the new tool.
"The key is that the middle office is really focused on that part of the work flow that happens immediately after the execution of the trade," said Bentley. "It is essentially between the broker executing the trade and all of the data being send off to clearing or settlement." Historically this has been a manual process, not an area that a great deal of technology has been deployed to support, certainly not to the extent that it has in the front office, according to Bentley. "A lot of changes are taking place in the market at the moment which are driving much more automation, much more digitisation, if you like, of the middle office."
Ullink has identified middle office as a major area of innovation within the capital markets, fintech space at the moment, according to Bentley. "We have five product lines and one of those is purely dedicated to the middle office."
Bentley has seen a reduction in the numbers of sales, traders and dealers in many investment banks and brokers. "Much of that is to do with cost pressures and regulatory factors. But the things that we talk about in the middle office, the drive to STP if you like, is very much a regulatory response," he said.
"What regulators are trying to do is to reduce the window between execution of a trade and settlement. That's the period when counterparties are at risk until the actual trade is settled," he said. "In the US for example we are going to T+2, or a two-day window from executing of the trade to settle and that is going to happen next year. We already did that in Europe in 2014, in Australia we did T+2 in March so this drive to reduce the time between a trade being executed and a trade being settled is key to reduce the risk period for the counterparties."
One of the consequences of T+2 is that the whole workflow - from execution through to settlement - is being compressed and there is increased focus on automation, on moving processes that were for example manual and end of day, to be automated in real time, according to Bentley. "We see that very much in the middle office space around something called same day affirmation, the idea that following execution of a trade, there is a workflow that happens between a broker and the asset manager, or the buy side," he said.
Essentially all information about how a trade should be allocated to account, how it should be settled, the fees and commissions associated with it, all need to be agreed between the broker and the asset manager, said Bentley. "That process culminates in the asset manager essentially affirming that all of the details are correct and it can go off to clearing if it is a centrally cleared product. So that same day affirmation is trying to get that process, all the agreement around the trade details and the booking details, to happen on the day of execution." If that can happen on the day of execution it means the rest of the process can then be completed and you can achieve these T+2 type deadlines, according to Bentley.
"Historically it has not been the case. The affirmation process in itself can sometimes take a couple of days." A consequence of this focus on shortening the settlement window, is that if you get it wrong you have much less time to deal with it and the costs to rectify can be quite significant, said Bentley. "The focus is very much on automation and streamlining the processes, validation, making sure all data is correct, making sure that is handled electronically, rather than over the phone as it sometimes is today."
Another main aspect is cross asset, according to Bentley. "Equities, derivatives and fixed income," he said. "All banks and all participants are having to focus on managing risk and having a real time view of their risk and exposure across all asset-classes, a holistic view." Ullink has found with its customers that more and more are looking at the middle office as the point where all executions flow immediately after the execution from a whole different variety of front office trading platforms, according to Bentley.
"A different derivatives platform, or an equities platform or whatever it might be all flows in the middle office and that really is a central point of visibility, of consolidation across all trading activity of the firm, no matter what asset class it is," he said. "So we talk about the middle office becoming a convergence layer where all of that information can come together and the organisation can get a consolidated view of risk and exposure.
"Those two things, the automation of middle office processes and the cross asset broadening of the middle office layer are really two big drivers of what we see happening in the market, what our customers are asking us for. That's why we build out our middle office product to support those trends."
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