Equipping the Front Office for the New Risk Environment

A Survey of Strategic and Operational Priorities
by Cubillas Ding, November 6, 2012
Operations/ Benchmarking
EMEA, North America

Abstract

A survey by Celent, commissioned by SAP, looks at the market and business-level challenges, organizational responses and best practices in managing trading, risk, and regulatory terrain ahead in the US and Europe.

In the report, Equipping the Front Office for the New Risk Environment: A Survey of Strategic and Operational Priorities, Celent examines the changing economics of equities, fixed income, credit and rates businesses, and how trading and risk management capabilities need to respond to market structure changes as well as emerging regulations and disruptive technologies on the horizon.

The past few years have seen intensive discussions and industry debates around regulatory change, derivatives market structure reforms, and their subsequent impact on a banks’ financial resources. The industry has now reached a pivotal time, where it is necessary to execute rather than talk, in spite of regulatory uncertainties ahead. For global financial institutions, Dodd-Frank, EMIR derivatives reforms, and Basel III are expected to individually cost between US$150 million and $350 million per firm. This is larger than any of the “big” precrisis compliance change programmes that we have seen in the last decade, such as SOX, AML, IFRS, MiFID I, and Basel II.

“At this stage, Celent believes that in order to deliver the kind of breakthrough results that risk practitioners, senior executives, and regulators are looking for, multifaceted changes on the business and technology front are required—not the incremental changes and quick fixes that the majority of firms have pursued in the past," says Cubillas Ding, Research Director with Celent’s Capital Markets, Finance and Risk Group. “More importantly, with firms heavily involved in compliance-led initiatives, which are characterized by tight deadlines and reporting obligations, change teams need to bear in mind that their initiatives must be catalyzed by regulation, but led by innovation and value.”

This report draws on findings and insights from Celent's most recent electronic trading, risk management, and technology study conducted to understand how senior executives from global tier 1 financial institutions envisage the future of their capital markets businesses and how their organizations are formulating strategies towards their goals.

This 27-page report contains 11 figures and 1 table.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is part of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America (Boston)
Erica Ferguson
eferguson@celent.com
Tel.: +1 617 262 8225

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)208 870 7875

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81.3.3500.3023

Table of Contents

Executive Summary

1

Introduction to Market Study

3

The Regulatory Agenda Is Entering a Phase Where It Is Time to Execute

4

 

Firms Brace for a Complex Risk and Regulatory Landscape in the Coming Years

4

 

Implementation Expenditures for Derivatives Reform and Capital Regulations Are Expected to Be Significantly High …

6

 

… with Market Dynamics and Business Priorities Being Shaped by an Aggressive Regulatory Agenda

6

Industry, Business, and Regulatory Responses

9

 

Business and Risk Mitigation Efforts in Response to New Market Pressures

9

 

… Call for Real Time Views of Risk, Operational Alignment, and Decision Metrics in the Front Line

10

 

Despite Strong Ambitions for the Future, Significant Systemic Challenges Remain in Relation to Systems and Data Fragmentation

12

Executing for the Future

14

 

The Need for a Top-Down Operational Orchestration

14

 

… Requires Straight-Through Integration, Intraday Capabilities, and Timely Deal Time Delivery of Data for Risk, Capital, and Regulatory Optimization

14

 

Optimizing Resource Usage and Addressing the Disconnect in Risk Workflows

16

 

Near-Term Trading and Risk Technology Priorities

17

 

The Longer Journey Ahead: Achieving Breakthrough Results

18

Final Thoughts

21

Leveraging Celent’s Expertise

22

 

Support for Financial Institutions

22

 

Support for Vendors

22

Related Celent Research

23

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