Notes from Roundtable session: Different approaches to transformation and cost reduction in Capital Markets post-trade environments

Notes from Roundtable session: Different approaches to transformation and cost reduction in Capital Markets post-trade environments

Roundtable discussion hosted by The Realization Group, led by Ascendant Strategy on 11th of September 2019

Following on from the recent publication on the challenges of the post trade cost puzzle, Ascendant Strategy led an insightful breakfast roundtable session to discuss the challenges of transformation and cost reduction. In attendance were a group of experienced practitioners from sell side institutions, custodians and technology vendors who brought perspectives from front, middle and back office to the table. James Maxfield, Managing Director at Ascendant Strategy kicked off the session highlighting that whilst the issue of the post trade cost base had been an area of focus for the last decade, it had still yet to be solved for most in a sustainable way. This issue was made even more challenging by the economic landscape that capital markets now found itself in as the ‘illusion’ of fee pool recovery finally disappears. Colleague Alastair Rutherford added further commentary around this space, citing that the emergence of technology tools created real opportunities for transformation within this space but only if organisations thought differently around how to approach the problem.

The Legacy Challenge – and compensating for its limitations.

A senior Operations manager started the conversation with a fascinating and intriguing statistic from a prior organisation – rather than staff spending the majority of their time using the main operations applications, it was found that they spent 60% of their time using spreadsheets, chat and email. Consensus was that whilst it made sense to address these ‘automation gaps’ using tools such as RPA, given the scale of the issue it made sense to review the overall process for optimisation. But this had to be led by the process owners, rather than adopting a historical approach to technology investment often experienced in certain organisations whereby IT itself is often driving the automation agenda rather than enabling it.

This led to a discussion on how automation is addressing cost reduction – there was resonance around the table that the traditional approach had been ‘skimming’ cost off, leading to poor but automated processes and significantly diluted expertise in the organisation leading to increased operational risk. Overall there was agreement that a different approach was needed to deliver sustainable optimisation of the post trade trade cost base. Given that many organisations are now operating a significantly simplified business model, working out what processes and technology is required for it,  rather than cutting down from a more complex starting point and addressing fixed cost through transformation rather than allocation,  is more likely to provide successful and sustainable results. The group strongly agreed with the business COO’s present that the Front Office should be leading these front-to-back efforts aligning investment with the business strategy.  Transparency of cost and cost drivers to drive accountability for cost and cost reduction is also key. The conversation expanded on from this to focus around how post trade technology historically had been viewed as an automation enabler at a functional level – such as within securities operations – rather than being presented as a front to back solution to a business problem. As organisations look to re-cast their operating models through leveraging tools such as zero-based budgeting or greenfield site planning, this shift in mindset was viewed as being critical to success.

Utilities A Naughty Word?

The value of collaboration – and the commercial benefits of mutualisation – then formed the basis for the debate. There was much dialogue around the relative success/failure of the utility concept and  one senior Operations manager commented that historically “utility” offerings had courted Tier 1 organisations , eventually stalling efforts after perhaps one client had joined. The real opportunity, they stated “was, and still is, in Tier 2 organisations where the financial (and Op Risk) challenges are much greater than the Tier 1’s”. Additionally, as typically regional players, there is not a fear of cannibalising clients as they service different regional client groups. There appears to be an avenue of opportunity through bilateral partnerships rather than full-blown “utility” operations in this scenario – certainly where a technology vendor provides a common platform to base the service on.

Managed services seemed a more credible path to derive mutualised benefits from, but these had to be considered based on the objectives of the organisation and the business problem trying to be solved. Not merely viewing take up of a service offering as a means to an end in isolation.


In concluding comments, Maxfield commented that the maturity of technology solutions emerging within the market provided credible solutions to the legacy challenge. But these solutions had to be bundled together to solve the post trade cost challenge rather than waiting for a ‘silver-bullet’ to resolve the issue in its entirety. The automation gaps outlined earlier – where ‘humans-as-api’s’ are involved in the process had to be addressed alongside the legacy technology challenge to bring about success.

Rutherford further echoed these points in conclusion, highlighting the criticality of viewing the post trade challenge through a lens of “what is affordable for the business going forward, rather than what can be skimmed from the historic cost base”. This forward looking view was critical for organisations to successfully “architect for the future”.