The lack of firm-wide visibility into brokerage, custodian, exchange and clearing expenses is the result of under-investment in post-trade processes, according to a recent report – “A New Era for Trade Expense Management”, by Meritsoft, a Cognizant company.
The study, which polled 450 heads of desks, C-Level and Senior Operations executives, found that although global investment banks are spending significant sums each year on their brokerage fees and billing operations, there are several challenges including .data, lack of automation and legacy technology.
Together, they make it difficult to fully understand and therefore optimise their spend across the organisation, said the report.
Drilling down, the research showed that brokerage-related fees are a top-three expense for the overall business at nine out of ten organisations.
More than half say it is their second biggest annual budget item behind only people and staffing costs.
Trade expense is also among the three for 88% with 80% paying between $250m and $1bn in 2020.
In addition, 54% believe trade expense costs and obstacles have affected decisions on capital allocation, and for 45% trading profits have been reduced
Although 65% see investment as a way to improve their trade expense management operations is one of the firm’s main priorities, only 24% have budgets in place
The report also revealed that 78% cite a lack of a central data repository as being one of the major issues impacting operational processes, while 77% pointed to outdated rate agreements and counterparty referential data.
“The need to understand and control costs across various desks, asset classes and geographies has increased, while the ability to do so has diminished,” Says Daniel Carpenter, Commercial Lead for Meritsoft.
Carpenter says, “Buy-in from senior decision makers is needed to invest in data digitisation, automation and new platforms and services that allow financial institutions to get to grips with their transaction-related fees and enable cost optimisation across the business. Our findings provide a compelling business case for board members to invest in solutions that shine a light on this costly and opaque area of the trade lifecycle.”
©Markets Media Europe 2021