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10 Trends That Are Reshaping the Wall Street Back Office

With new regulations on the way and calls for greater scrutiny and transparency into how financial instruments are priced and cleared, the importance of a strong back office is destined to receive a lift this year. Here are 10 developments that are reshaping Wall Street's operations departments and the technology they use.

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"Why do you have so many people?" the operations manager at a small New York metals trading firm gets asked a few times a week by line managers who consider his department nothing but overhead. "What are they all doing? Aren't there some efficiencies or best practices you can put in place to do more with fewer people?"

The weary ops manager -- who works 13-plus-hour days, six or seven days a week, to ensure that all of the firm's metal orders get shipped to the right places and that the financial transactions are completed properly -- can think of no good answer. His shoulders hunch, his hairline recedes and his attitude deteriorates further. None of his staff are goofing off; in fact, some work even longer hours than he does. The fact is, his paper-bound firm is reluctant to spend money on software. And if it did deploy software to automate some of the data-entry tasks that his operations staff perform, he most likely would be forced to lay off many of his loyal workers.

This is not the glamorous world of the high-stakes trader or investment banker. It's the often time-capsuled world of the back office, sometimes referred to as "Australia" because of the parallels to a penal colony to which people in other departments who misbehave are sent.

"The reason we haven't made more progress in operations is because we're coming off of 20 years of excessive performance of 10 percent or more a year," says Tim Lind, managing director, strategic planning, at Omgeo and a former TowerGroup analyst. "When a firm is profitable, no one cares what's going on in the back office -- they can be betting it all in Saratoga. When the firm is losing money, now they've got to be efficient."

But with new regulations on the way, along with calls for greater scrutiny and transparency into how financial instruments are priced and cleared, the importance of getting trade transactions right -- the purview of the back office -- will become a little clearer, more-sophisticated software will be implemented and the operations manager might (maybe) finally get some respect.

"For the career operations professional, there's so much work involved in knowing how this stuff is run," says Lind. "It's not as celebrated a position as it should be, but these people really do know the moving parts of the organization, how the information flows and what it means. They're the ones who can aggregate it and present it to regulators in a lucid way."

There are 10 trends that will reshape Wall Street's back offices over the next year (drumroll, please):

1. The never-ending requirement to do more with less.

Jami Wysota, Diversified Investment Advisors
Jami Wysota, Diversified Investment Advisors
"The biggest trend we see is enormous pressure to provide more for less at a quick pace," says Jami Wysota, VP of participant solutions at Diversified Investment Advisors, a Purchase, N.Y.-based advisor specializing in retirement plans. "Everybody is under that same pressure: How do you handle more clients and communicate with customers more without hiring. Everybody needs to look at the back office and say, 'Where can we be as efficient as possible?' The only way to do that is to look at technology. People are working as fast as they can, but there's an enormous amount of work; technology helps you turn out that work much quicker at a more palatable cost."

Wysota says Diversified Investment Advisors is considering technologies such as as mass e-mail systems that could be used to replace print communications. "Where legislation allows us, we're trying to embrace things like text messaging," she adds.

One popular way to cut operations costs on Wall Street, according to Ben Keeler, director at consultancy Citisoft, is to rethink data acquisition strategies. "Clients are making a significant move to rationalize where they're acquiring pricing and reference data," he relates. "It's not your standard, 'Can we get rid of this interface, can we get rid of this vendor?' They're looking at their policies and general data trends. Is there a general trend toward disintermediation of data? Can I get data directly from an exchange versus a provider? How do I change my policy to adapt to the changing data landscape?"

Another cost-cutting measure that is picking up steam in the back office, according to Lou Maiuri, global head of outsourcing at BNY Mellon Asset Servicing, is outsourcing (see Trend 4).

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