FEATURE
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Says Dennelly: “Where we have made our biggest investment in the past year has been in automating and building exception processing capabilities in the back office workflow to provide a real-time dashboard that will interact with these different connection points, in real-time, and allow users to be able to put through tremendous amounts of volume. Some of the bigger clients we are talking to want to process more than a million transactions per day. One of the benefits of SierraLink is the consolidation into a single framework because this makes reporting much easier. Some users are consolidating between 5-15 execution engines and the quicker these can be brought together into a central repository; the easier reporting will be, no matter what the regulatory requirements are. A large focus of the redesign that will include the new dashboard will be the back office, and this is currently in test for release in the first quarter of 2012.”
Sang Lee “Te assumption is that trading volumes in the
bilaterally over the counter market should not be as high as the exchange traded market but the FX market is more like an exchange-traded market and volumes have been soaring over the past few years.”
is that the operational efficiency in the lifecycle of an FX trade had got to be improved. Te investment over the past 10 years has focused on the front office, on trade execution, connecting to multiple platforms and increasing market share of trades. Te back office, which is typically more complex because it involves clearing and settlement, has lagged in terms of investment, he says. “No matter what happens in the regulatory framework we know that most likely reporting will be required, which means there needs to be better access to data, and there will be challenges ahead with regard to central clearing. Tis is going to be a challenge for big and small banks, in terms of volume, and getting trades to CCPs in the time cycle, efficiently.”
According to Dennelly, most of the high volume traders of FX are outlook traders that shop their prices very accurately to get the best execution. “If you want to compete in this space you have to be very operationally efficient in the back office and in reporting. A high level of automated is needed to lower the cost per transaction,” he adds.
46 | october 2011 e-FOREX
He adds: “Netting, too, is going to become very important. Once you bring in central clearing agents, or even aggregation tools, charges are based on per transaction and the more that can be netted, the lower the fees, thus reducing the average cost per transaction. Tis is where a centralised back office, with real time capabilities to net, is going is to lower cost. Tis will translate into the front office in helping to increase market share because margins are so thin.”
With the spiralling volumes in algorithmic trading and greater volatility in the market, Dennelly says that the back office was becoming a hindrance to the front office, even before the new regulatory requirements. “Te size and scale of trading volumes has made the FX back office a very serious challenge and firms are looking at how to make it more efficient as it is holding the front office back from chasing new business, because it is too expensive and the front office is actually being told the back office cannot cope with higher volume,” he says.
Today, the back office is, in some cases, exceeding some front office capabilities and Dennelly believes the need to process FX in real-time is going to drive the future evolution of the back office, along with regulatory changes. “If you can solve the first problem, and have the data available in a normalised fashion, dealing with the regulatory requirements is achievable. It is all about how quickly FX transactions can be processed, without limiting the front office. Rules- based processing to reduce the number of exceptions will not only drive the back office but the next round of growth in the FX industry.”
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