Automation by 2015?

By Jon Alvar Øyasæter

The most serious economic crisis since the worldwide slump of the 1930s is now behind us. With the markets starting to settle down, firms are trying to make sense of the new global financial order. There’s no doubt, however, that there’s going to be plenty more change over the next five years. The introduction of new financial regulations is continuing and these rules are bringing with them increased demands for transparency and risk control.

One of the most obvious developments will be how capital markets firms tackle the need for seamless and efficient one-entry operation between the front and back office and how they run and manage best-of breed multi-system architectures. And they'll be considering all this while ensuring compliance with new international regulations and national rules covering everything from market abuse to reporting. The need to comply with these regulations and meet risk management requirements will in turn drive demand for real-time end-to-end processing.

But it's not just about implementing new systems and processes; it's also about examining how firms can harness their business advantages. Some think the exchange-broker-investor structure will be transformed into a new network that's open to all. This might lead to certain firms choosing to specialise in just a small part of the total trading value chain while others optimise their business across the value chain.

Benefitting investors

This transformation could lead to the development of a more efficient, standardised and large-scale infrastructure. In turn, automated systems, open architecture and large-scale processing will be developed, creating economies of scale that will benefit everyone. A key challenge for the investment community is how to harness this to optimise their own value chain and benefit their end customers.

The move towards automation is set to shift up a gear, building on the swift progress already made in the capital markets sector. Programme trading has swept through the industry and trading activities has mushroomed. This has brought new challenges for firms which have to create an automated pricing strategy and manage liquidity across multiple funds. Automation has improved real-time risk management, by increasing deal flow and creating better links between market makers and remote sales traders across a banking group. As a result stronger client relationships are emerging and improved efficiency is reducing transaction costs.

Although a certain degree of automation is essential for banks, to cut costs, improve business processes, tighten up physical and financial supply chains and build their market share, in practice it is difficult to achieve 100 percent automation or straight-through processing (STP) across the whole trade finance ecosystem.

Automated progress

Progress is already being made in areas such as trading, value-added services, risk management and corporate action. Trading is already close to full automation, making monitoring easier and more cost effective. Block trading is increasingly catered for through dark venues. However, as liquidity fragments, executing large blocks is getting more challenging. But we expect more developments in this area.

Value-added services during and post-trading are emerging, boosting sales, development and co-operation. Initial Public Offerings (IPOs) are yet to be fully automated, and the industry should be able to enjoy better and faster sales and improved cooperation in future.

How will things look in 2015? Some think that by then a fully automated post-trade process could be in place, which is run by large-scale international operators. Others think it's all about achieving an acceptable - rather than complete - level of STP, and this seems to be the best solution for banks so they can improve efficiencies and meet customer demands. Tieto believes both trends need to be encouraged, supporting the optimisation of the end-to-end process to ensure a true real-time STP operation can be achieved and at the same time taking advantage of the development of efficient market platforms.

About

Jon Alvar Øyasæter is responsible for Tieto's Capital Markets and Life business. He has many years of managerial experience in international solutions and software in the financial industry. He also has experience as an analyst, controller, business developer and CFO. He holds a master's degree in Business and Administration.

www.tieto.com/financialservices

financial.services@tieto.com