When trading ends for the day in any city in the world, a new shift begins for workers who value their instruments, confirm trades and get the books and records ready for the next day.
However, close of business transaction reporting is not a competitive advantage and it requires highly skilled people to run systems overnight in multiple geographies around the world. Given the costs and resources involved, there is a growing demand to outsource end of day transaction reporting to a shared or managed service. Firms may run these systems in-house but there are costs and operational inefficiencies that are creating a growing demand for a different solution.
[Derivatives reforms require trade reporting to SDRs. Third party focuses on needs of buy side and corporate end users. Read: Using Real-Time Events in Electronic Trading to learn more.]
Last week Sapient Global Markets said it had launched a Close of Business (CoBS) managed Service Offering for trading entities in capital markets and commodities. “The crux of the offering is to help business close their end of day activities across the globe, multiple regions and multiple locations,” said Arun Karur, VP and head of commodities at Sapient Global Markets, in an interview. CoBS offers an automated, standardized reporting solution to manage all operational activities required for close of business reporting.
Multiple Closes Around the Clock
Typically in a bank or energy company, trading happens during the day using the firm's in-house trade-capture system, such as Calypso or Murex.Toward the end of the day, firms need to make sure all their trades are captured and that they have a good sense of where they stand in the market and that all the obligations they have on the traded instruments are met. All this starts after the trading day ends when the middle and back office take over, confirm trades, value deals are in the money or out of the money. In firms with global operations, trading begins in Singapore and as that market closes London kicks in and when London shuts down, New York is starting up, said Karur. “You are doing this around the clock. It’s multiple closes,” he adds. Management has a correct and accurate report on exactly where the portfolio stands. CoBS is currently being used by nine clients and Sapient would like to open it up for broader client onboarding. The service covers capital markets firms’ trading in FX, interest rates, credit and equities. In commodities organizations, it covers trading in gas, power, crude, and usually have some FX and interest rates to hedge the other instruments. Sapient is able to run the clients’ footprint across these five asset classes.
What Sapient CoBS does is take over before the day closes, run their systems and the processes to make sure that all the positions are marked to market and available to start trading by early morning the following day.
With the managed service approach, firms can avoid the most taxing part, which is hiring people for overnight work. End-of-day transaction reporting requires hiring highly skilled worker in local geographies, and the work needs to during the evening or overnight, so they are spending more for what the resource should cost, said Karur. Since employees work overnight, morale can be an issue and it’s not a sustainable role. There’ a lot of “churn” with people working overnight causing inefficiencies and errors, said Karur. “All the firms are making the best effort to do it, but because of practical constraints it’s not all being done cost efficiently and it’s not scalable, “ said Karur. “What should be a business as usual activity can be expensive,” he asserted.
Based India, CoBS has hired and trained people who can do this work around the clock. Sapient has been performing this work on a client- by-client basis. For instance, it has worked on about 20 trading system implementations for Murex and Calypso. “As things matured and stabilized, we found that instead of building something for each client we could actually create a common managed service offering and offer it to all clients and pass on the savings to our clients,” he said. Karur contends that close of business reporting is suitable to outsourcing because this is not a competitive advantage and is something that “just needs to get done.”
Karur said that everything is done on the client’s infrastructure. So there is no on-boarding cost. Data never moves out of the client’s enterprise and Sapient’s team connects to the client’s infrastructure directly. “Our teams in India get a dedicated connectivity to the client infrastructure and then execute those functions on the hardware that is available and then generate those reports.”
“This demands highly specialized skills. This is not managing a Java or .Net business. You have to understand the training business so it becomes a specialized skill set,” said Karur.
Currently users of the service are large sell side firms — at least five of the G14 banks and large energy players based in North America and Eurupe, including global oil firms as well as medium to large utilities and energy merchants. Sapient Global Markets Solutions has teams in London, Dusseldorf, New York, Houston and Singapore supporting clients of CBoS.
While CoBS has been in the market for the past nine months, next year Sapient plans to expand the line of business moving into derivatives and other ‘business as usual’, post-trade activities that are not strategic in nature. He see this expanding into other middle and back-office functions. "As long as you have a good system, people running spreadsheets, collating data, pushing data, going step-by-step," this is suitable for outsourcing suggests Karur. Areas of expansion include validating a trade, confirming trades, reconciling trades between exchanges, invoices and scheduling settlements. "There's a whole slew of areas it could be expanded into," he added.