THE MIDDLE OFFICE
become clearer. This, we believe, would change the nature of these businesses and would certainly change risk/reward dynamic for the better. We fail to envisage a scenario where investment in the middle office towards these goals would not add to the value of the whole business. We look toward a position where a capable set of talented professionals work closely with both the front office and the management of the business to produce a well understood and transparent risk management process that serves the needs of both groups.
what prevents the fantasy that we laid out earlier becoming a reality tomorrow? Middle office staff are actively engaged in tasks on a day-to-
day basis that are entirely necessary to the healthy operation of commodity trading businesses. These tasks can include confirmation processes and guaranteeing correct data is entered into the trade processing and portfolio management systems. Within these areas we can see a number of manual processes that are taking disproportional amounts of time to the value created. It also becomes clear very quickly that central to the needs of the middle office is a quality set of trade data – a golden standard, where you know that the trade is good, and you know that all the parameters associated with it are correct. Interestingly, this is at the centre of both relieving the middle office staff of the less valuable day-to-day duties and also the information they need to really begin to add value in risk and the related areas. It would be no good having end-to-end risk integration if you weren’t sure about the trade. For all these reasons, Trayport
is investing in these process areas. Central to this, and to our initial activities is what we internally refer to as ‘static data’. Providing a consistent high quality master data set to all of our systems, guaranteeing quality and providing more than just the ‘economics’ of the trade that we do now. This is very much our goal, and the team established has made great progress in pulling this together. We are integrating this data into our platforms, and the additional information will start
To this end, Trayport had been looking to identify the areas where it would be able to assist in making this desirable fantasy a reality. Many market participants already use Trayport solutions in the front office. Given the importance of alignment with the front office, our evolution into working on middle office solutions was a natural one. Trayport works to solve problems with issues at energy trading and commodities businesses with software. We see everything from a software and systems integration angle. These issues are no different. One of the major areas that we are looking at currently is the need to remove a lot of the existing tasks from the roles that the middle office people are currently engaged in. In essence,
38 June 2012
to flow down into end user platforms over the next year. This, however, is only the first stage. It leads to questions about
how we make sure that the trade data arriving at the Middle office is high quality? The answer is: Confirmations. In particular real time confirmations at the point of trade; the use of a solution that lets you confirm, clear and report at the point of execution has obvious benefits (Figure 1 above). This not only adds value to the entire trade lifecycle but allows
the middle office to play an increasingly integrated role further up the trade processing value chain. They can act as a service enabler to the front office by providing accurate and real time information including mark-to-market, value-at-risk and credit risk limits in a timely fashion. Figure 2 shows the seamless integration between the front and middle office. By providing real time confirmations following the trade, operational risk can be effectively managed as any inconsistency is flagged up immediately. This prevents issues and risk propagating downstream. We are still very much in consulting mode and are refining the
model we have shared here. During the ongoing consultation phase it has become evident to us that an effective confirmations
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