Trade Management - The Case for More Functional and Utility-like Systems

©2011, Cognizant

Cognizant Research Center February 2011

Trade Management The Case for More Functional and Utility-like Systems

| ©2011, Cognizant 2

Effects of the global financial crisis on post-trade operations of buy and sell side firms

Asset managers tilting towards greater automation and outsourcing of post-trade activities as they face relentless demand for generating greater alpha while cutting costs and increasing efficiencies

Custodians are reviewing their service models with a view to incorporate greater levels of transparency

Brokerages looking for solutions that will help them comply effectively with new regulations

Cloud-based, utility-like trade management systems will strengthen the financial muscles of capital market firms by providing them with the much needed flexibility to focus on core operations

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Asset ManagersFactors Pushing for Improved Trade Management Systems

• Inability to handle the growing volumes of exotic securities has lead to a fail-rate of more than 30% in trade confirmation.

• Complex, new trading strategies and expansion into new asset classes and markets is ratcheting up the pressure on middle- and back-offices.

• Reliance on manual processes in many day-to-day operations, such as trade verification has created long-standing inefficiencies

Inefficient Trade Management Systems

• High incidence of trade failures

• Trade capture errors

• Lengthy repair queues

• Asset manager on-boarding time

Post-trade Pain Points

• Cost savings

• Improved quality

• Assessing internal capabilities and expertise

• Focusing on core competencies

• Rationalizing technology

• Supporting new product launches

Imperatives for Asset Managers

• Reduction in total cost of technology ownership

• Non-value adding operations can be eliminated

• Help leverage economies of scale, and focus on high-value activities

• Ensure access to latest technology

• Eliminate the risk of acquiring talented staff

• Helps make a clear measure of risks depending on the nature and criticality of the component outsourced

• Create a level playing field by providing smaller players access to the best technology

How Hosted Solutions Can Help

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Custodians

• Face demands for greater transparency and real-time reporting from asset managers

• Have expanded into new geographies. On-boarding same client on different platforms is time consuming

Monetizing Non-Strategic IT Assets

• Have built global platforms for back-office outsourcing

• Despite redundancies, these platforms can be used to provide commoditized post-trade support

• High volume, low-return processes can be executed with an external service provider in a cloud environment

Custodians can Leverage their Outsourcing Platforms Through Cloud

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Brokerages

• Executing trades over the phone will become a thing of the past

• OTC derivatives moving to exchanges will mean systems need to be upgraded to meet compliance requirements

OTC Regulations Pushfor Improved Systems

• Brokerages have had to pay huge fines for failure to comply with SEC requirements to preserve records

• Putting these records on the cloud will help them save money

Clouds Can Help Brokerages With Regulatory Compliance

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Cloud-based Utility-like Trade Management Systems

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Technology FinancialServices

Legal/Professional

Services

Retail Healthcare Manufacturing Education Energy Government

Financial Services, a clear leader in cloud adoption across industries, next only to technology sector (%)

• A survey by Mimecast found that 68% of financial services firms want to move more activities to the cloud as their initial rollouts helped overcome fears such as security concerns, loss of control and performance worries

• IDC estimates that the number of trading firms using SaaS solutions has increased by 40% during the past four years

Cloud Adoption High in Financial Services

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Before Making the Move to Cloud

• Perceived loss of control and decreased customization

• As operational risk moves to the provider, their expertise in the field becomes crucial

• Provider’s prioritization will drive the introduction of new technologies

• Once outsourced, bringing a function back in-house could be difficult due to loss of expertise

• Poor financial viability of the vendor could create serious risks

• Shift to variable cost model could result in higher costs if volumes grow significantly

Understand the Risks

• Conduct a thorough analysis of the speed and costs associated with choosing a vendor

• Evaluate your core competencies before moving to the cloud

• Analyze the vendor’s geographic reach and the ability to cater to multiple teams simultaneously

• Optimize trade management to reduce processing costs in the later part of the trade life cycle

• Demand transparency from the vendor over risk management

• Determine the clear operations risk profile to ensure overall control

Perform Due Diligence

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• Multi-entity, multi-currency and multi-instrument processing

• Support various messaging protocols (ISO 15022, ISO20022, XML, etc.)

• Integrate multiple channels and formats

• Tailoring of automation, processing and information delivery to user requirements

• Message validation, business validation, template validation and outbound message validation

• Workflow engines that allows exception management through calendar based user / manager dashboards

• Risk dashboard to present data / transactions based on user configurable risk profiling

• KPI dashboards to monitor performance

• Extensive report generation and delivery capability

• Ability to integrate with third-party reporting tools

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Before Making the Move to Cloud

Look For…

©2011, Cognizant

Akhil TandulwadikarCognizant Research Center

Aashish ChandorkarCognizant Business Consulting

For more information, please visit: http://www.cognizant.com/InsightsWhitepapers/Trade-Management-Systems.pdf

Thank you