Securities finance: Driving efficiency and accuracy through front office automation

Written by Joris Capeau Head of Securities Finance and Credit & Market Risk Solutions
Securities finance: Driving efficiency and accuracy through front office automation
  • Automation significantly reduces the repetitive nature of front office work, increasing accuracy and efficiency
  • Minimizing data input frees up the trader to focus on negotiation and identifying market opportunities
  • Balance sheet optimization unlocks capital by regrouping trades and removing them from balance sheet reserves

Changes such as regulatory compliance and cost pressures are forcing financial institutions to adopt new digital solutions in order to transform their operations and strengthen their market position.

In capital markets, automation is the catalyst driving efficiency and accuracy across the complete range of securities operations, with a specific focus on the front office.

Machine learning drives intelligent automation in securities finance

The repetitive nature of securities finance makes it a prime candidate for automation. The consistent requirement for human intervention in repetitive tasks such as flattening inter-desks, the price marking of securities lending, or the treatment of corporate actions, reduces productivity and increases the risk of errors.

However, automation coupled with machine learning means that data from financial operations can be quickly processed to deliver practical, actionable insights that the trader may not otherwise detect. Out-of-range negotiated rates or suspicious financial information are two examples. The longer the trading history, the better the accuracy of artificial intelligence.

So how can this be translated into a workable securities finance solution?

To be effective, automation must be relevant to the user, so that’s where the process starts: with a user persona and journey. By reviewing the trader’s tasks, the people with whom they interact, the method used for that collaboration (i.e. phone, email or other electronic means), and the speed of the process, we can create a clear picture of the operations that are regularly undertaken.

Examples of automation

Automation can minimize the amount of direct data input traders have to do within the securities finance workstation. Predictive algorithms can help them to foresee typical next actions. This potentially leads the software to suggest collateral securities for the transaction, either at trade inception or in case of substitution.

Traders can take this a step further by creating a series of automated processes impacting the lifecycle events of the trades. Highlighting re-rate opportunities is a popular use case for automation, where users sets a profit they want to achieve (spread or monetary threshold), and depending on market conditions, the system identifies trades matching predefined criteria.

It should be noted that automation is not an all-or-nothing approach. In simple situations, users could let the automated process run its course without much human involvement. Alternatively, users may want to keep control of some elements and make the final check in the case of stochastic outputs or if negotiations are needed with the counterparty.

Another way automation can help is by optimizing the balance sheet to unlock capital by regrouping trades. If it is based on criteria such as the regular information provided at workstation level (like trade, currency, counterparty, key dates...) a system could regroup all trades, creating an aggregated view. Traders are therefore directed to where they can unlock capital by making adjustments.

In addition, automation can help with funding optimization, which allows users to borrow cash by letting software choose the best collateral to post against the cash.

Benefits of automation for the front office

Automating repetitive front-office tasks not only makes better use of traders' time, but also allows them to focus on where they can make the most significant difference – beating the market to generate profit!

However, benefits go beyond profit to include:

  • Reduced operational risk
  • The rapid analysis of large data sets to drive higher returns
  • Quick identification of failed trades and the reason for failure, allowing traders to implement remedies quickly
  • Redirection of resources to work on strategic rather than manual issues

What does it all mean for the future of the front office?

To remain competitive, financial institutions are under pressure to invent new ways to progress customer engagement. This is the reason why banks and fintechs are looking to implement code-based automation designed to encourage a new breed of rationalized operational processes.

Today, new digital solutions are powering new levels of business process efficiency and effectiveness in both trading and post-trade operations.   

Finastra’s Fusion Markets is one such solution. Its open architecture and componentized structure deliver the clarity and power that investment banks need. System-agnostic, it easily integrates with multiple existing and future IT systems, so investment banks can innovate and deploy the business solutions they need across the front and back office.

Finastra’s Fusion Markets provides all the capabilities banks need for fast, effective securities finance operations - across the front- and back- offices. For more information on our securities finance solution, contact us here.

Written by
Joris Capeau

Joris Capeau

Head of Securities Finance and Credit & Market Risk Solutions

Joris Capeau is head of the Securities Finance and Credit & Market Risk solutions at Finastra. His focus is on delivering high added value to the customers by working closely with them and staying aware of current market expectations. Earlier in his career, Joris worked for capital markets financial...

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