In news accounts about Societe Generale's recent trading fiasco, there were mentions of how the operations department was called "the mine" and all Jerome Kerviel wanted was to get out of there and become a trader. The International Herald Tribune reported that in 2006, a man working in Societe Generale's back office operations killed himself on a suburban train. This made me wonder -- is it time for a change in the way operations is viewed? Maybe the people responsible for settling billions of dollars worth of trades shouldn't be abused or treated like peons.I posed this question yesterday at a panel discussion on settlements at the Financial Technology Forum's credit derivatives operations conference. An operations executive at a large brokerage firm acknowledged that indeed, operations is considered the bottom of the barrel and that there needs to be better coordination between the traders and the ops people.
But a buy-side firm executive on the panel said such was not the case at his firm, because the investment advisers there have a vested interest in making sure the trades they place for their clients get settled properly. "We don't have breaks in trades," he said. Janet Wynn, managing director at the DTCC, said she's seeing better cooperation between operations and trading groups in cross-industry efforts she's worked on. (Wynn recently implemented a credit events system within the DTCC's Trade Information Warehouse, whereby if a company has a major "credit event," such as going bankrupt, the effects of that would be figured into any affected derivatives contracts in the warehouse.)
Uncertain times lie ahead for credit-backed derivatives, and figuring out how to deal with contracts where the underlying credit has failed will be increasingly important.
What do you think -- is it time to give Operations better technological and moral support? Please write me your thoughts at firstname.lastname@example.org.