LAKE SUCCESS, New York,
Sept. 22, 2015 /PRNewswire/
-- Large banks spend between $6 billion
and $9 billion processing standardized trades each year, and
could reduce those costs by up to 40 percent by adopting a
"utility" model, according to a new study by Broadridge Financial
Solutions, Inc. (NYSE:BR). The study says that by sharing in a
range of trade processing functions – from core post-trade
processing, reference data and reconciliations to trade expense
management, corporate actions, and tax and regulatory reporting –
in a utility model, the industry could save up to $4 billion annually.
The report, titled "Charting a Path to a Post-Trade Utility,"
addresses the ongoing regulatory pressures and economic challenges
that weigh on banks' profitability. "Despite significant cost
cutting and restructuring post-crisis, most banks still struggle to
post returns that exceed their cost of capital," said Tim Gokey, Broadridge chief operating officer
and co-author of the report. "Over the next five years, regulatory
pressures are set to grow, so banks are increasingly looking to new
and unconventional ways to regain efficiencies, particularly within
the trade lifecycle. Emerging utility models hold significant
promise."
Inflection Point in 'Post-Trade'
The report provides analysis based on case studies and
proprietary Broadridge data, and cites core "post-trade" processing
(clearance, settlement, custody, financing and recordkeeping), in
particular, as a natural starting point for an industry utility,
and analyzes the challenges and opportunities for developing such a
system.
"Our study specifically focuses on the potential scale and
network benefits of a core 'post-trade' processing utility," said
Mr. Gokey. "Over the past two decades, institutions have invested
heavily in unsuccessful attempts at building such utilities –
typically due to misalignment over governance and ownership,
competing priorities, and technology and implementation struggles.
But with growing ROE pressure, fewer banks competing head-to-head
across markets and greater willingness to consider new operating
models, the industry may be nearing an inflection point where the
potential benefits of a post-trade processing utility outweigh the
challenges that have undermined past efforts."
According to the study:
- Core post-trade processing offers the highest potential for
cost reduction at banks currently. Nearly all major financial firms
handle post-trade processing in a similar way for a majority of
their equity and fixed income trades. Meanwhile, inefficiencies
within the function persist, as decades of bank mergers have left
system redundancies and firms have invested little in middle-and
back-office technologies since the financial crisis. By pooling
large trade volumes across a fixed cost base, a post-trade
processing utility could reduce banks' processing costs by up to 40
percent.
- Post-trade processing represents a natural starting point for
an industry utility. It is central to the trade lifecycle –
matching buyer and seller records, confirming trade terms, clearing
and settling trades, calculating margins and performing custody and
asset servicing. As the system of record for banks, it also
delivers a range of data useful to other critical functions,
including corporate actions, tax and regulatory reporting, and
reference data.
- A post-trade utility would mutualize regulatory investments and
aid with "living wills," which require large institutions to show
how they would plan for an orderly resolution process in the event
of a failure. By enabling banks to quickly identify and segregate
trading and portfolio assets and shift their custody to safer
havens, a utility would ease recovery and resolution.
"The creation of an industry post-trade utility will require a
carefully scoped approach, starting with the most liquid and
standardized asset classes – fixed income and equities – and
focusing on regions where the market structure is most
centralized," concluded Mr. Gokey. "By leveraging proven multi-bank
technology and operating models and a commercially-driven approach,
banks would nearly halve the investment, time and risks associated
with establishing a post-trade utility."
About Broadridge
Broadridge Financial Solutions, Inc.
(NYSE: BR) is the leading provider of investor communications and
technology-driven solutions for broker-dealers, banks, mutual funds
and corporate issuers globally. Broadridge's investor
communications, securities processing and managed services
solutions help clients reduce their capital investments in
operations infrastructure, allowing them to increase their focus on
core business activities. With over 50 years of experience,
Broadridge's infrastructure underpins proxy voting services for
over 90% of public companies and mutual funds in North America, and processes on average
$5 trillion in equity and fixed
income trades per day. Broadridge employs approximately 7,400
full-time associates in 14 countries. For more information about
Broadridge, please visit www.broadridge.com.
Media Contacts
Kate McGann
Broadridge
Katherine.mcgann@broadridge.com
+1 646 291 9971
Brett Philbin
Edelman
Brett.philbin@edelman.com
+1 212 704 8263
Logo -
http://photos.prnewswire.com/prnh/20110920/MM71626LOGO
To view the original version on PR Newswire,
visit:http://www.prnewswire.com/news-releases/utility-model-could-trim-banks-9-billion-trade-processing-costs-by-up-to-40-percent-according-to-broadridge-report-300146956.html