The People Factor in Post-Trade Risk

Not surprisingly the risk focus for the finance industry has mainly concentrated on the front office but this is not even half the story of the actual risks that firms are taking, which inevitably get passed onto the investor.

A major area of risk is in the corporate actions process. During years of research and personal experience, I have found that corporate actions risks are a hybrid of those found in both front and back office, although the vast majority of firms put these in the bucket marked operational risk. This is wrong and is actually covering up the real risks, preventing accurate measurement and the introduction of mitigating systems and procedures.

The Post-Trade world is very complicated and getting even more so, with market structures continually changing. There are more complex trading and investing strategies, along with new rules and regulations. Post-Trade risks are wide and many, but to some extent can be mitigated by systems. However, before a system solution is specified it is imperative that the processes of both in-house and out-house are understood. It is unlikely that there will be a simple technical solution to solve the complete problem and in many cases bespoke developments and workarounds will be required. This is even more the case in corporate actions where there are so many external parties, systems, practices and transactional requirements that rely on the expertise of people.  It is for this reason that experts in corporate actions are guarded jealously by financial services firms. The need for industry wide knowledge in the corporate actions department should not be underestimated, as when things go wrong and the system is unable to solve the problem, the CA expert comes into their own.

In the next Post-Trade Forum debate on this subject the panel is joined by Alan Wells, a seasoned professional, currently Deputy Head of Operations at Butterfield Private Bank. Alan is well known within the industry having spent many years working in the front line of corporate actions operations, being one of the few people left in the industry to have a complete handle on the whole operational process. Alan has garnered deep industry knowledge and experience, having worked in corporate actions for many different firms. He has been at the coalface and is battle scarred, with years of coping with just about everything that can go wrong in corporate actions processing. His views should be of genuine interest to forum attendees, as an industry expert who is still tackling the problems on a daily basis.

Post-Trade risks can be reduced with technology and standards are extremely valuable in the overall efficiency of markets, but it is the individual knowledge of people working to solve a problem, who should not be undervalued in the firm’s risk solution. Concerns have been expressed recently that the industry is losing far too many people who have broad knowledge and experience and is instead putting too much emphasis on technology and standards. But training and wide experiences are really important, a fact that has not gone unnoticed by the vendor community who tend to snap up these experts when they become available.  No doubt all these aspects and more will be debated in next the Post Trade Forum, on the morning of the 27th October hosted by the London Stock Exchange and sponsored by SmartStream.