Efficiency

Carrier Pigeon or Twitter Bird: The Evolution of Corporate Actions Messaging Efficiency

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A version of this blog post was originally published by Wall Street & Technology.

Virtually every industry in every corner of the world has undergone technological or process evolution in recent times. There are countless examples of innovations that have addressed a challenge – the process takes too long, the process costs too much, the process is too risky – and changed the game by helping organizations or individuals operate smarter through efficiency, automation, or simplification.

Let’s consider communication, or the transmission of messages, as just one area where evolution has occurred. There are ways to communicate that involve quite a bit of manual work, such as the use of a carrier pigeon. Not the quickest way to transmit a message, and not too efficient, as apparently a carrier pigeon typically only flew in one direction – home – and would need to be manually taken to a message’s original location to begin the process. Given the level of difficulty and manual intervention required, it’s no surprise we don’t see the skies full of email or text message pigeons today.

On the flip side, if we look at a more modern messaging bird, it is evident that technology has changed the game for how individuals, organizations, and governmental entities can communicate and discover information. Twitter offers its users a simplified and efficient way to communicate specific messages to an audience across the room or across the world – pointing to why the social network has amassed millions of users in just a few years.

A similar, albeit less feathery, evolution is taking place within the corporate actions space today.

Traditionally, when firms need to process a corporate action, they are faced with manual work along the way. While some firms have adopted automated corporate actions solutions to increase efficiency and reduce risk, there are still too many communication points within the corporate actions process that require manual intervention. In particular, when a firm is sending instructions for optional or voluntary events to The Depository Trust and Clearing Corporation (DTCC), those messages are still entered manually. Of course, this ups the risk and the cost of corporate actions processing for DTCC participants.

The industry is recognizing these challenges and the next evolution of corporate actions processing is now underway. The DTCC has begun a long-term, large-scale project called the DTCC Reengineering Initiative, a phased approach to automating the entire lifecycle of corporate actions for U.S, securities. In fact, successful testing of automated ISO 20022 message feeds between DTCC, SunGard’s XSP, and a select group of U.S. financial firms is already in progress.

The end goal? Evolve the corporate actions process to provide straight-through processing (STP) for industry participants, reducing the risks and costs associated with manual processes, while increasing efficiency through messaging automation. Industry utilities and vendors are hard at work to ensure their customers and participants don’t need to shoulder the burden of building bespoke solutions to keep up.

While the industry still has much work to do to get systems ramped up, new ISO 20022 message interfaces developed and testing completed, we are well on our way in this evolution of efficiency. Hopefully it won’t be too long before manual U.S. corporate action processing will also go the way of the birds.

When Every Penny Counts, Firms Must Operate Smarter Through Deeper Data Analysis

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The full version of this blog post originally appeared in Wall Street & Technology. It also appeared on Bank Systems & Technology.

Today’s economic environment has become increasingly difficult, forcing executives and managers to analyze expenditures and business practices with more scrutiny in an effort to remain profitable.

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In addition to the expense of creating and maintaining an effective cost identification and management solution, broker-dealers are faced with the issue of the integrity of its results. Most financial services firms today are engaged in multiple businesses across global markets and with a magnitude of clients and business partners. Each new profit conduit is also an opportunity to add expense.

In order to identify profitability and cost savings, firms must manage large and disparate data sets housing transaction details, market timing and circumstances, and relationship details. The task of collecting, mapping and then parsing multiple data sources for accuracy is a big challenge. Even if a company has the ability to manage the data sets, there is a level of sophistication and depth that few market participants have achieved to date.

It is becoming increasingly important for firms to have access to a solution that can deliver a complete overview of costs via an integrated model across accounting and the front office. It should allow for a deep dive into disparate data sets to better handle alpha and cost attribution, and help improve trading decisions based on real-time analytics and granular data. This system should also then deliver the right information to buy-side clients to efficiently measure performance.

With the right access to and view of cost-related data, firms can give themselves a competitive advantage and operate smarter in today’s difficult markets where every penny counts.

While you’re here…

vice president, risk solutions, SunGard's capital markets business

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Risk Management: Making Sure the Tail Doesn’t Wag the Dog

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This blog post originally appeared on TabbFORUM.

Risk can and should be seen as the core of a financial institution. The management of risk has become an industry in itself, led in turn by regulatory drivers, technological advancement, trading floor developments and quantitative research. In this blur of evolution, it is easy to lose sight of exactly what is required of the risk department, and it is worth taking a step back to refocus on what is important.

There has always been a risk function. The key to that function is ensuring that the firm takes risks commensurate with the risk objectives as spelled out by the management of that firm, and that there is sufficient liquidity within the organization to withstand those losses that are reasonably foreseeable.

When risk management was primarily concerned with prudence in granting loans and investment diversification, there were challenges – but these were generally well understood, to the extent that many of the quantitative methods used by funds without derivative exposure are more than 30 years old. The use of derivatives, however, introduced the need for a new level of analytics, started as an offshoot of the trading desks themselves, and moving through being a trading strategy to becoming the central plank of the regulatory reporting requirements across the world. These requirements now include:

  • VaR (and various VaR derivative measures, such as VaR Shortfall)
  • Stress testing
  • Tail analysis
  • Sensitivity analysis
  • Liquidity stress testing
  • Potential future exposure
  • CVA

The essence of the risk management function though, remains the same, ensuring that risks are in line with what is now known as the “risk appetite” and that there is sufficient liquid capital available to mitigate losses that will inevitably occur as a result of taking those risks. This is fundamentally a human activity, a fact that can become lost within the overgrown architecture of many modern risk infrastructures. The first step to re-establishing the function as an efficient, people-led one is to understand how badly planned technological deployments hamper that intention.

The key barriers to risk efficiency are:

  • Too many disparate data sources leading to risk analysts spending much of their time ensuring that various systems have produced results and aggregating those results (a process that in itself often leads to significant loss of accuracy).
  • Black-box processes make the validation of the risk results difficult to check. This is a particularly thorny issue, as results indicating no issues do not attract the same level of attention as results pointing to potential breaches of risk limits. Given the potential impact to the business, these investigations are conducted in pressurized situations.
  • Regulatory reporting has increased in response to the crises that have hit the financial world, from Barings collapse to the recent credit crunch. As regulators seek to protect the system from individual firm failure, the amount of time spent complying with the rules has risen exponentially.

The dichotomy is that the need for technology has never been greater. The power and speed available now should enable risk systems that allow risk management to view, analyze, understand and communicate risk profiles in a way that promotes their function far above regulatory compliance and (back) into trading and portfolio strategy. To achieve this, the technological stack must enable certain core capabilities.

  • Processes that can be automated should be both automated and subject to audit and reporting – manual aggregation leads directly to operational risk. Communication systems and protocols now exist that enable almost any systems to speak to each other, with reporting and feedback available. As long as reporting on these systems exist and are available as standard daily outputs, there should be little to no human involvement in data aggregation.
  • Risk reporting should allow for “deep dive” investigation of the risk profile by risk analysts – this should be one of the core activities of the department and should allow sources of risk to be identified, whether those sources are related to the risk-generation process itself…
  • Trade representation
  • Market data
  • Risk methodology

…or actual trading positions affected by:

  • Individual, identifiable trades or positions
  • Risk factors impacting the portfolio as a whole
  • Risk management should be able to communicate both the risk position and the risk appetite across the organization – along with risk investigation; this should be the main activity for the risk department. It is exactly this communication that creates the platform for the chief risk officer and the board to determine the risk appetite itself, and to express that appetite in the terms and language of the risk reporting. It is equally important that the risk takers are kept informed of the same risk positioning in order that they use the risk system and its results as a critical input into decision making.
  • Risk management needs the ability to make trade corrections on an intraday basis. In order to achieve the level of credibility required for risk to become a strategic tool, when errors in the input data are discovered, they must be corrected and the risk made accurate. The correction capacity for the risk analysts has to be built, in a compliant way, into the risk architecture.

The current technology makes the above possible, with the recent increases in computation speed, data storage capacity and quantitative sophistication all available to complement online reporting and communication. In short, the technology has finally caught up with the needs of the industry – as long as existing, inefficient infrastructure and the regulatory pull on resources allow for what is available to be deployed intelligently across the organization.

Risk management, as a central financial function, has never enjoyed as high a profile as it does at the moment, but it also has never had the barrage of issue to deal with simultaneously. As long as the technical designers remember that the technology must empower the human activity that is risk management, then the outcome can and should be truly effective and credible risk structures acting as the nervous systems of the firms they exist within.

product manager, Valdi, SunGard's capital markets business

Limit Up-Limit Down: Where’s the Limit?

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This blog post originally appeared on Advanced Trading and in the John Lothian Newsletter.

On April 8, 2013, the new Securities and Exchange Commission (SEC) rule Limit Up-Limit Down, aka Rule 608, will go into effect in the attempt to lessen volatility in the equities market. Limit Up-Limit Down was passed on May 31, 2012 to “address extraordinary market volatility market wide.”  At the time of the ruling, the Single Stock Circuit Breaker rule was in place to address market volatility, but was not consistent across the market. Limit Up-Limit Down will eventually replace the Single Stock Circuit Breaker in its entirety as it is rolled out in two phases over 2013 with the complete roll-out expected to be complete by September 2013.

To understand why this new rule has come about, one needs look no further than the events of May 6, 2010, known as the “Flash Crash.” During the Flash Crash, the market nose-dived at record rates in a very short time; within only 20 minutes, the market had dropped nearly 1000 points.  Almost as fast, the market gained back nearly 600 points.  This type of incident is ripe for conjecture and philanthropic thought about how to stop another Flash Crash event from taking place again.  Unfortunately, the ‘why’ is generally overlooked, as seems to be the case again today, where once again firms are sent scurrying to comply with a new regulation.

As technology has advanced, the markets have relied more and more on electronic trading, which coincidentally has led to some of the most significant market events in recent times.  This has put an unnecessary burden on a vast majority of firms, who, in an already fragmented market with withering profit margins, now must spend more on compliance.  The costs of running a business are becoming astronomical and firms are feeling that burden.

Now it seems obvious that the Flash Crash and similar instances before and after were accelerated by high-frequency trading (HFT) and rogue algorithms. High-frequency traders profit from the smallest arbitrage opportunities available. These arbitrage opportunities cannot be spotted quickly enough by humans, so these traders rely on technology, co-location hardware, and high-tech algorithms to find, analyze, and react to the information with little to no human interaction. There’s little regulation in place for monitoring and reacting to rogue algorithms today. This all begs the question: why has the SEC chosen to develop a rule that doesn’t necessarily address the root of potential market volatility issues?

What will happen as HFT firms migrate to other asset classes and instruments where the Limit Up-Limit Down Rule does not exist?

With the advent of this new Limit Up-Limit Down rule, the onus is on broker-dealers to have a system in place that will not allow executions to occur outside the set price bands nor quote outside the price bands, and will monitor for executions that might occur during a halt after a limit state has been enacted for more than 15 seconds.  Broker-dealers will also need to have access to this market data to truly understand the price band movements and how this may impact their resting limit orders.

In the end, it feels like this rule is a blanket oversight that fails to tackle the real issue around extraordinary market volatility, the rise of high frequency trading and rogue algorithms. When it comes to Limit Up-Limit Down, when will the regulators realize their limits?

market analyst, Astec Analytics, SunGard's capital markets business

Intraday Securities Lending Data: Too Hot to Miss [Part 2]

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This blog post was originally published by TabbFORUM.

In a two-part story, we examine the past and present of securities lending data. In part two, we discuss current examples coming from Europe.

In the second in our series analyzing the benefits of intraday securities lending data, we will be focusing not on what has happened already or what could happen in the future, but what is happening right now. We will be looking at companies that are seeing some of the highest borrowing rates and utilization levels in the markets today. These are companies where daily rate changes can be hundreds of basis points, where knowing what is happening, as it happens, translates into real money gained or lost. This is a look at what is just too hot to miss.

The first such company is German solar panel maker SolarWorld, which has been holding near the top of the board in terms of both annualized borrowing cost, which stands around 50 percent, and utilization rate, which is hovering in the 98 percent region. Meanwhile its shares have plummeted over the last 12 months following its poor 2011 earnings numbers; its shares now stand at just one quarter of their peak value seen early last year. The story is ongoing however, and toward the end of January, the shares dropped a further 30 percent the day after SolarWorld said it will need to restructure its debt after a review of its earnings prospects.

This is the kind of situation where intraday data can really show its worth. On one hand, lots of players in the market are borrowing and lending SolarWorld shares at rates and volumes that translate to big money. On the other hand, underlying fundamental news for the firm can have a massive impact on short selling activity, and subsequently in the securities lending space. This combination highlights just how important it is to be able to see the impact of these moves in real time – borrowing costs don’t just change at the end of a day, they change during the day.

Another example of one such company comes in the broader context of a trend the UK has been seeing during the past 12 months; where once flagship, household names such as the media store HMV and the photography outlet Jessops, have declared bankruptcy. The company we will focus on is the online directory HIBU, formerly Yell and before that, the much better known Yellow Pages (then a printed directory). This company has been showing signs of trouble in the era when any contact information can be looked up directly online.

Many analysts are saying this could be the next name to fall. SunGard’s Astec Analytics makes no judgements about the validity of the sentiment either way; the important aspect in this case is the necessity of those in the market to know exactly what is happening with at-risk companies.

From the securities lending perspective, this is very similar to the SolarWorld example. HIBU currently has one of the highest borrowing costs in Europe, around 48 percent, which has been prone to a lot of volatility and short, sharp shocks over the past few months. From a market indicator point of view, our data takes on another role however.

We can, for example compare HIBU’s numbers with those of HMV, which also held a place at the top of our “hot stocks list” in terms of the total borrowing cost of shares. In terms of raw numbers, HMV’s cost of borrowing before it declared bankruptcy had also held in the 40-45 percent range. What’s more, the number of HMV shares being borrowed did not increase, as one may expect if more and more people were shorting it, but actually fell significantly in the months leading up to the bankruptcy. It seems that lenders were calling back their on-loan shares for one reason or another.

Even discounting for the higher-volatility and lower-net market activity of HIBU, a side-by-side comparison with HMV shows a very similar pattern between the two.

At a time when the financial markets and world economy are still plagued with uncertainty, and companies like SolarWorld and HIBU are seeing such extreme borrowing costs and active lending, keeping updated in real time has never been more important. This is also the case within the securities lending market itself.

senior vice president, Stream, SunGard's capital markets business

Key Theme for Asian Middle Office: Automation

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This blog post was originally published on TabbFORUM.

It is well known that Asia is leading the world in the proportion of trades achieving same-day affirmation (SDA); most Asian trading venues comfortably exceed SDA rates of 90%, whereas the U.S. trading venues currently achieve 70%, on average. The automation of middle-office processes in Asia’s securities markets continues to be implemented with great vigor. This trend is undoubtedly being propelled by forthcoming regulatory requirements; yet there are other factors also driving the development.

Clients are demanding ever greater efficiency, with SDA being seen as not only best practice but an essential requirement of broker-dealer service level commitments. It is evident that error rates and the operational costs associated with them could be radically reduced, and general settlement efficiency could be significantly improved, if all details of a trade are agreed to on the day it is executed.

Of course, automation gives other benefits to broker-dealers besides merely reducing trade failure. Other examples include more reliable trade allocation, the ability to accurately monitor one’s securities lending, and the automatic alerting of corporate actions.

Recently, broker-dealers have found their clients demanding SDA, electronic confirmations and the streamlining of the settlement lifecycle. Accordingly, the relative efficiency of middle-office processing has become a means by which brokers can differentiate themselves from their competitors. A sell-side provider that proves its ability to handle increased volumes efficiently would likely attract further increasing volumes. With error mitigation, the provider can also help to keep costs down.

For brokers, the automation of post-trade processes is a no-brainer: It makes smart sense operationally and financially, and it is essential to compete and to comply with regulations. It also enables brokers to be better prepared in their processes for the inevitable future contraction of trade settlement periods.

Many Asian sell-side providers with automated middle-office processes not yet in place are urgently striving to implement them to gain a competitive advantage. Based on industry news, Australian market participants and Chinese firms are rapidly signing with system providers offering automated middle-office suites that can be implemented around existing processes.

With Asian capital markets participants seemingly leading the way in post-trade efficiency, it may only be a matter of time before electronic same-day affirmation and confirmation nears 100 percent, as would befit one of the world’s fastest growing regions.

While you’re here…

global head of connectivity, SunGard’s global trading business

Back to the Future

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This blog post was originally published on DerivSource.

The news that NASDAQ OMX is investing into Dutch alternative venue TOM MTF proves once again how much the European trading landscape has changed recently, with the focus increasingly shifting from equities to derivatives, given the paucity of trading volumes in equities and unsustainability of a lot of the venues that appeared on the scene after MiFID.

TOM MTF, short for The Order Machine, counts the largest Dutch institutions as shareholders (Optiver, Binck Bank, ABN, IMC) and has been working largely under the radar for a little while, first launching an equities MTF with a lit order book specialized on Dutch stock. Then followed, after a long and protracted battle; the launch of the relatively novel idea of a competing MTF listing and trading single stock equity options on Dutch stocks, which put in direct competition with NYSE Liffe Europe’s Amsterdam business.

With strong backing in the Dutch financial community and a market quite used to trading derivatives, TOM MTF is one of the very few trading venues to have chosen derivatives as their main focus, introducing competition in an area typically considered a duopoly in Europe between NYSE Liffe Europe and EUREX. With a market share around 15% in equities options for a trading platform launched little more than a year ago and with the usual difficulties with regards to clearing and settlement that have affected other alternative venues in Europe, such as Turquoise Derivatives, they are today one of the few credible derivatives alternative market – albeit operating on a small niche.

NASDAQ seems determined to get back into the thick of it in Europe, after the unfortunate experience of NASDAQ OMX Europe (remember them?), one of the first pan-European MTFs which failed to garner enough traction against Chi-X, Turquoise and BATS, and ultimately closed a few years’ back. The combined launch of NASDAQ NLX, competing in the rates business with the exchanges mentioned above, and now with the possibility to spread the battle to the listed equity options world through the TOM MTF “franchise” is definitely an interesting combination, showing the strength of the trading platform operator.

Interestingly, NASDAQ OMX through the TOM MTF investment has also acquired the opportunity to go back to equities trading competition, as the Nordics equities landscape increasingly fragments, no longer being a “chasse gardée.” We may be closer to seeing Europe finally turning into a single market, no longer a series of individual markets linked through technology. It may also be that we will see new life breathed into some of the market consolidation brutally curtailed by the successive failures of the LSE/TMX and Deutsche Boerse/NYSE Liffe Europe tie-ups.

Many of the current alternative venues are not viable, and the larger operators need to prove to their shareholders they have a strategy, and one that works: diversifying, buying market share or integrating new ideas could very well be the way forward.

While you’re here…

vice president, collateral management, SunGard's capital markets business

2013 Agenda: Central Clearing, Collateral Optimization, Initial Margins

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This article was originally published on FOW.

We all know that the regulatory tsunami of Dodd Frank, EMIR and Basel III is causing a fundamental change in the financial industry and to both buy-side and sell-side business models. With many of these changes coming into effect in 2013, great strain will be put on people, processes and balance sheets. Now is the time for a comprehensive look at how firms are adapting to this new reality and what their main priorities are for driving change and investment.

To put some structure around this aim, SunGard, in conjunction with the specialist risk management consultancy, InteDelta, conducted a study.  The study which was focused primarily on collateral management and optimization, investigated the readiness of the industry when it comes to impending regulatory change, the key priorities driving investment in infrastructure, and the changes to buy-side and sell-side firms’ businesses.

We set out to find answers to some pertinent questions, including:

  • What are the key priorities driving change and investment in collateral management practices? How do these priorities differ across buy-side and sell-side firms?
  • To what extent do firms feel that their collateral management capabilities are sufficient to successfully support their business in the future?
  • How are firms addressing initial margin calculation and what are the drivers affecting this issue?
  • How far advanced – or not – are firms with regard to collateral trading and optimization?

As we expected, some of the key findings validate our thinking. Others were more surprising.

On the whole, what we do know is that there remains much work to be done for most firms to get in place the infrastructure to handle the fundamental changes about to hit the OTC derivatives market and the knock-on effects on repo and securities lending.

So what is really keeping firms up at night?

Central clearing, initial margin, and collateral optimization are high on everyone’s agendas, as expected. Most investment so far has been tactical, to merely tick the compliance boxes. It appears most firms still have much strategic work to do, particularly on the sell-side. In particular, only 10% of respondent firms feel their systems and processes are complete in their ability to support the combined cleared and non-cleared model, and most are building out their OTC clearing capabilities from the existing bilateral collateral management function. Furthermore, only 21% said they have “fairly advanced collateral optimization solutions” in place. Findings like these are cause for some worry, as the regulatory clock keeps ticking and firms will only have so much time left to prepare.

Where does your firm fall on the collateral optimization, initial margin and central clearing preparedness spectrum?

CLICK HERE TO DOWNLOAD THE REPORT OF FINDINGS FROM THE SUNGARD-INTEDELTA 2012 GLOBAL COLLATERAL MANAGEMENT SURVEY.

trading and client connectivity, SunGard’s global trading business

European Equity Trading: Research and Regulation Collide

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This blog post originally appeared on TabbFORUM.

Tabb Group’s new report, “European Equity Trading 2012/2013: Changing the Rules of Engagement,” highlights some issues that we must hope politicians will note during their review of the MiFID regulations.

It’s no exaggeration to say that Tabb’s research profiles an equity market in crisis ─ arguably one that is dysfunctional in some important respects. “Lit book” trading volumes have again fallen sharply in 2012, and there has not been a correspondingly large increase in dark pool trading. So the predicament, as it appears to most buy-side firms, is one of vanishing liquidity. And the buy-side’s primary concern – as reported to Tabb – is how and where to find what liquidity is left.

There are worrying signs of a self-reinforcing downward spiral, so one objective of regulatory change should be to stop or even reverse this trend. Good liquidity, after all, usually implies tight price spreads and the best results for end investors – the people whose interests the MiFID regulations are intended to serve.

The market fragmentation unleashed in 2007 hasn’t helped in this respect, as it has spread the thin post-crisis trading across an increasing number of platforms. In the absence of a consolidated tape of traded prices, fragmentation has also posed another challenge to the buy side: a serious lack of market transparency. This, at least, looks likely to be rectified with MiFID II.

But can MiFID II help with the liquidity crisis?

At the moment, it does not look likely. Even if we put aside the threat of a minimum resting time for orders ─ which may not appear in the final regulation ─ MiFID II has worrying implications for liquidity. A central finding in the new Tabb research is that block trading is in decline, with traders instead choosing to slice large orders via algorithms and then trade many of those small slices in dark pools. It’s clear that asset managers are increasingly finding this the safest and most efficient way of implementing buy and sell decisions in major portfolio adjustments.

But the broker crossing networks and dark multilateral trading facilities (MTFs) that support this mode of trading will not be allowed to do so after the implementation of MiFID II as it’s currently drafted – MTFs and “systematic internalisers” will have pre-trade transparency waivers only for “large in size” orders. So, who knows where those fugitive smaller orders will get executed? When we consider this factor alongside the constraints on market-making activity implied by the MiFID II drafts, it seems clear there is potential for a further downturn in liquidity.

Elsewhere in the Tabb Group report, it’s positive to see the increasing focus on execution quality and the rising usage of transaction cost analysis (TCA) in measuring it – often with multiple systems now being used for cross-checking. But the liquidity concern remains: if new regulation causes further volume reductions, then the market impact of larger orders will grow and those detailed TCA reports could make for depressing reading.

So let’s hope that MiFID’s apparent mantra of “transparency at all costs” is moderated, before the costs become too high.

solution specialist, SunGard’s capital markets business

Prime Services: Is Your Business Ready for 2013?

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This blog post originally appeared on TabbFORUM.

Though hedge funds and the prime brokerage industry have not escaped the turbulence of recent years, they are both in relatively good health as we approach the end of 2012 and look ahead to 2013.

In the aftermath of the global credit crisis, hedge funds and their investors began to concentrate on counterparty risk and their exposure to service providers. Many hedge funds, if large enough, began to spread their positions across multiple prime brokers. At the same time, the larger firms’ appetite for offering prime brokerage services to small hedge funds was diminishing. This presented opportunities for some of the smaller firms and created an opening for new prime services entrants to the market.

Today, hedge funds have become some of the most important customers to many banks and brokers, whether they offer prime brokerage services or not. Many of the larger hedge funds will be paying substantial fees and commissions to their brokers and financiers.

At the same time, competition for business between prime brokers has become even more tightly contested, and the demands from hedge funds continue to grow and change. Add to this the proposed and implemented regulatory changes across the globe, and it is unsurprising that prime brokers are seeking new ways to differentiate the service levels they provide.

Meeting these new demands is expensive and time-consuming for even the largest prime brokers. Much of this is due to the nature of the prime brokerage systems being used today; many are a conglomeration of legacy systems, vendor point solutions and in-house development. Meanwhile, the clients and businesses these systems support have become ever more sophisticated and varied.

Today, we are seeing a transformation of the prime services business model. Both the demand, and the available services, are moving from an all encompassing one-stop-shop model to one with a number of different flavors of prime service provider, whether they be prime brokers, prime custodians or boutique offerings handling specific aspects of the operational support.

As the world covered by prime service providers expands, the need for a multi-asset class core system which is smartly designed and volume insensitive has only increased. For instance, aside from the requirement of 24-hour support, the provider must provide a consolidated view of the clients’ business for both reporting and internal risk assessments. At the same time, clients are now more demanding of a consistent level of service in all locations.

The challenge for all of these firms participating in prime services supply is the same: how best to connect different parts of the firm and different services and systems in a consolidated offering to their clients? With the right system in place, firms will be better positioned to react with speed to changes in client and regulatory demands. The ability to provide a consistent level of effective, global client service supported by an efficient, consolidated technology platform can be a key differentiator in today’s increasingly competitive industry.

With industry changes and new challenges mounting for prime services providers, I suppose the biggest question of all is: is your firm ready for 2013?

While you’re here…