COMMON BACK OFFICE – IS IT TIME?

I am amazed by securities industry firm’s technology budget allocated to post trade activities. Granted that these activities are critical, but the fact is that there is very little value-added that differentiates one firm’s process versus another’s from an investor or industry perspective.

A shared back office (SBO), established as an industry owned utility can internalize and process all these activities delivering efficiencies, reduced risk and considerable cost savings. Additional benefits of a shared back office include;

1. Free up capital, now allocated to back office technology projects, for client service enhancements and revenue generating products and services

2. Improve post trade process efficiencies

3. Reduce the number of transaction processed

4. Ease the transition to a shorter time between trade and settlement

5. Generate timely and accurate metrics for industry participants and regulators

Though this would be a major change, the industry has faced similar challenges with great success. This change is similar in scope to the establishment of Central Securities Depositories (CSD). This resulted in brokers and banks moving physical securities from their vaults to the CSD so that the certificates could be immobilized. This was a step towards eliminating movement of physical stock certificates between industry participants.

This change appears to be a “win, win” for the industry. Of course we need to select the organization that would provide the service and define responsibilities of the members and service provider.

             What do you think about this - If no, why not - If yes, it should it be 
              provided?

        What organizations should coordinate development of this service?

                  What are the benefits and / or downside?