Missing The Middle ...
The market is facing some very specific challenges with the introduction of new regulation. In particular it will place a number of confirmation, clearing and regulatory obligations on participants. Here we look at the role of the Middle Office in more detail. What are the unique challenges middle office functions face and do they have the unique tools they need to be successful? How can the middle office manage operational risk and reporting obligations while maintaining agility? We also examine how an alignment with the Front Office can have a major positive impact on driving success.
By James Davies
LAST YEAR, TRAYPORT undertook a selective survey of market participants. In doing so we made a mistake. During our categorisation exercise prior to the survey we failed to include one specific area of the businesses that we were surveying – namely the Middle Office. This made us think about what we had missed. What were the middle office’s specific challenges and needs? How is this function integrated into client businesses? What aspect of our software currently served these groups and did it make their lives easier, harder or had no effect? These turned out to be much harder questions to answer than we initially perceived.
The end result of this process has been the creation of a new team within Trayport specifically focused on the middle office. Hopefully in the future this will lead to a much easier and more integrated role for those working in the middle office for energy and commodities, at least for those served by Trayport.
While looking ahead, we would
like to share what we have learnt, uncover some misconceptions, and understand the value that the middle office can bring to this industry. Finally, we would also like to look at some very real next- steps in making the vision of a fully integrated middle office with specific tools for its needs, a reality.
AS WE BEGAN our examination of the Middle Office we forced ourselves to take a deep look at what the function does and where it sits in the current businesses of our clients and prospects. To date, we had placed the roles commonly understood to be Middle Office with Back Office functions, assuming that these roles were essentially part of the accounting, monitoring and conformance processes common in back office departments. After some analysis it appeared to us that the perception of the middle office and the value it brings is shaped by the boundaries of where the ‘ownership’ and accountability for successful trade processing exists. In some participants it was assumed that the link between Front and back office was a straightforward set of reports passed post-trade, with a few individual trade breaks highlighted intra-day. We saw differing levels of integration between front and back office with few making the data ‘sing’, – in fact sometimes there was a lack of clarity on where in the trade lifecycle the middle office added value. We did come across a few businesses that impressed us with the
quality of process integration between front and back. Co-ordination between front and back was well handled and the culture of collaboration within these businesses was exceptional, producing a very good front to back flow of useful information. We also noted
... what should change across the industry to make more effective use of undoubtedly talented middle office staff?
some interesting differences in workflows, motivational factors and the positioning of traditional middle office function activities between brokers and traders. Brokers tend to work towards confirmation at T+0 whereas the trading firms we spoke to are working towards T+3. These differences shape the internal drivers and motivation in a business and ultimately can be the key component in how the middle office is perceived and integrated. Many middle office employees have unique insights into how there
can be more directional flows of data, real time feedback and the elimination of costly failures in processes and associated systems. Which brings us to the fundamental question: what should change across the industry to make more effective use of undoubtedly talented middle office staff? To start with, we could look at the few businesses where a more
effective use of middle office staff has been successful and attempt to productise this. This means a detailed examination of the more successful organisational structural models, and looking at the goals
36 June 2012
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88 |
Page 89 |
Page 90 |
Page 91 |
Page 92 |
Page 93 |
Page 94 |
Page 95 |
Page 96