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Principles for effective automation in post-trade processing - Part 1: Beware the ‘bot’ army
Each generation in operations management seems to rediscover ‘automation’ as a new solution to the challenges of cost, control and customer service. While the set of technologies available to automate post-trades processing changes over time (not always in positive ways), the fundamental set of principles for successful automation have been largely established since the 19th century. This paper reviews the historical evolution of automation in both manufacturing and services to identify the principles for successful automation. It then looks more specifically at the progress of automation of post-trade processing in capital markets over the last 50 years — something that has brought vast improvements in efficiency. Trying to increase automation in the post-trade world without understanding how complex the environment has become can lead to the misdirection of investment, use of inappropriate tools for automation and potentially make infrastructure and business processes worse. Drawing on the lessons learnt in the operations department of a major global bank, this paper describes how understanding the basic principles of automation can help ensure investment in automation is focused on the areas where it is most likely to be successful. It also describes the tools and techniques for gathering the data required to apply those principles correctly. While the lessons described are hopefully clear, the paper also explains why the relevant decision makers need to also understand the fundamental nature of operational processing, how to cost effectively acquire the right data, and how to ask the right questions of technology providers. Ultimately, any automation program, no matter how good the technology or how well funded, can fail without understanding the business context and asking the right questions. This is the first of a two-part series. Part 2, to be published in issue 13.1 of this journal, will focus on how using the right levers for increasing automation depends as much on human factors as the technology options.
The full article is available to institutions that have subscribed to the journal.
Martin Walker is Director of Banking and Finance at the Center for Evidence-Based Management. He is the former Global Head of Prime Brokerage Technology at RBS Markets and former Global Securities Finance and Treasury IT at Dresdner Kleinwort. Martin is the author of the book Front-to-Back: Designing and Changing Trade Processing Infrastructure and contributed to the book Evidence-Based Management: How to Use Evidence to Make Better Organizational Decisions. He has provided evidence to the UK Parliament’s Treasury Committee on Digital Currencies and has published several papers on blockchain and cryptocurrencies. Martin received his master’s degree in computing science from Imperial College in London and his bachelor’s degree in economics from the London School of Economics.