By Mike Thrower VP International Sales, EMEA and Asia Pacific, Broadridge Financial Solutions
By Mike Thrower VP International Sales, EMEA and Asia Pacific, Broadridge Financial Solutions

Making the case for change in Post-Trade FX processing

As return on equity in financial markets continues to remain stubbornly low and often below funding costs, business leaders need to consider their options to address core underlying profitability. Many have already deployed the traditional options of offshoring, nearshoring, outsourcing. And still industry wide ROE is below 10% against a higher cost of capital. This position is not sustainable and so new approaches and different target operating models need to be considered.

This dilemma is forcing a fundamental shift in the search for business solutions that can build on the industry trend for the mutualisation of cost models, where a common facility is shared by many market participants. However this shift needs to be made against a backdrop of a multi-year general lack of investment in middle and back office technology and operational processing. FX operations took a leap forward in 2002 with the launch of CLS (for multi-currency cash settlements) covering spot, forwards and vanilla swaps to mitigate so-called ‘Herstatt Risk’. This covers the majority of the STP market which is a high volume but low margin business. However, the ‘80:20’ rule is applicable here – broadly speaking the non-CLS FX and OTC transactions cover 20% of total transactions but create 80% of the processing touch points for operational units – and hence the majority of operational costs. Shared operating models Unfortunately, when we consider the full...continued

Exclusive Content

The full article is only available to current subscribers. Click here to sign in or subscribe by clicking here