In this discussion, Erik Petri, Head of Optimisation and Vikash Raghani, Co-Head of Product, explore what the Post-Trade Alpha research tells us about the changing role of post-trade.
They discuss why firms are increasingly treating post-trade as a strategic priority, why data quality and a trusted trade record are fundamental, how operations teams can move from firefighting to higher-value decision-making, and how automation and optimisation can translate into efficiency, profitability and value for your clients.
Watch the full discussion to hear their perspectives on what post-trade alpha means – and what firms can do to unlock it.
Post-trade is increasingly being seen as a strategic matter – one that can drive alpha returns – rather than simply a cost centre.
In the Post-Trade Alpha Report, 45 firms across the sell side, buy side and fund administration were asked how they view the role of post-trade and where they see opportunities to improve efficiency and create value.
The findings suggest that the industry is ready to invest in fine-tuning their post-trade engine to win business: Overall, 94% of respondents are reporting good levels of preparedness for “extreme but plausible” operational disruptions in post-trade processing, as required under DORA, SR 11-7, or equivalent frameworks. This shows that the industry has a high level of confidence in the resilience of their post-trade operations – the focus is now not just on “keeping the lights on”, but on gaining value from post-trade.
But what does that mean in practice?
For decades, the back office has been seen as a necessary evil: a cost centre that allows the profit centre to exist. That is changing.
Data quality and the speed at which firms can achieve that quality are becoming increasingly important. The higher the quality of trade data, and the faster a full portfolio view can be established, the smaller the buffers firms need to hold — whether for capital requirements, liquidity requirements for settlement, or other purposes.
Smaller buffers can drive profitability in the short, medium and long term: there’s your alpha.
The opportunity starts with the foundations of post-trade processing.
A strong capability that quickly ingests every trade after execution can free up operational resources from firefighting to value-adding activities such as better client service. It can also enable more accurate calculation of capital requirements and liquidity needs, reducing the need for excessive buffers.
Upstream data issues can result in trade breaks, settlement disputes and other downstream challenges. Establishing an authoritative trade record directly after a trading decision has been made creates a golden record that can be used as a point of truth.
The research found that a quarter of respondents said that 30% of their operations resources are spent on firefighting.
The question is what those resources could achieve if they were able to focus on higher-value work instead.
The future of operations is not necessarily about removing people from the process. It is about elevating humans to higher-value work and automating more mundane tasks.
Human-in-the-loop operations teams can focus on higher-value decision-making: capturing exceptions, analysing them and remediating them.
At the same time, the industry is moving from an era of automation towards an age of intelligence. Bringing intelligence and actionable insights on top of existing processes and datasets can help firms make better use of the information they already have.
But confidence in that intelligence depends on confidence in the underlying data.
AI is nothing without clean data. If the underlying data cannot be trusted, the signals and inferences produced from it will start to deviate.
Speed matters, but speed without purpose is not enough.
The report found that 43% of respondents said post-trade transparency, speed and automation directly contribute to institutional client satisfaction, with a further 43% saying this is increasingly becoming the case.
The opportunity is therefore broader than operational efficiency alone.
Better data, faster processes and optimisation can contribute to lower capital requirements, better use of the balance sheet, fewer trade breaks and ultimately higher profitability. They can also allow firms to run their businesses more efficiently, offer more attractive pricing to clients and differentiate themselves from their peers.
End-of-day batch processes and multi-day confirmation cycles just don’t work in this new paradigm. So as Europe starts to ready itself now for the T+1 mandate, it can learn from the lessons that we went through last year in the US, but also really look at every aspect of post-trade market structure and look to find efficiencies to bring those timelines down.
Connecting counterparties to confirm, allocate and clear trades.
Continuous reconciliation to identify and address trade breaks and disputes.
Portfolio compression services designed to help reduce capital and liquidity requirements.
Optimisation capabilities that help firms make more efficient use of capital and margin.
