Industrialisation of securities and derivatives transaction processing: Silos in the past, platforms today and functional modules in the future

Abstract

From the point of view of operations, the development in the last decade of securities and derivatives processing can be described as ‘from manufacture to machinery’. As in many other industries — with the most prominent example being the automotive industry — ‘industrialisation’ has taken place to optimise production processes. Typical approaches, such as sourcing decisions (‘make or buy’), process automation and efficiency improvement (ie straight-through processing, ‘STP’) to generate cost-savings, optimisation of process quality and reduction of operational risk, have been used increasingly in the banking industry. In securities and derivatives transaction processing, this industrialisation has led development from asset-focused silos to cross-asset processing platforms; however, the dramatic increase in regulatory requirements has provided the catalyst for the next step in industrialisation. In parallel, there has been a shift from manual processing along the transaction processing chain to nearly full STP coverage on the transaction level plus manual functions on a meta-level. After a review of the recent developments from ‘silos to platforms’, this paper will discuss future progress. From the perspective of DZ BANK, regulation and automation will require an operating model analogous to the future one envisaged for the automotive industry. The requirements of flexibility to substitute asset classes and the target of full automation based on a once-and-final set-up of transaction parameters result in a ‘modular’ approach or combined elementary function blocks delivered from selected sourcing options. DZ BANK is continuously developing this approach, and first experiences will be discussed here.