Large financial institutions could slash back-office trading costs by up to a quarter through automation, a new white paper by The Depository Trust & Clearing Corporation (DTCC) claims.
The DTCC findings, based on a survey of nine large global trading institutions, found automating seven key back-office processes could reduce costs by between 20-25 per cent.
Even prior to the coronavirus pandemic “cutting trading costs was already squarely in the crosshairs of banks and broker-dealers trying to wring inefficiencies from every part of their operations”, the report says.
However, the industry would inevitably face increasing pressure to reduce costs amid “evolving regulatory requirements”, DTCC says.
“Cost savings through automation are typically realized across multiple operational areas, which is why it is difficult to see these savings in aggregate. Trade support, settlements, reference data, agent bank fees, asset servicing, financing costs and technology are all positively impacted by implementing an optimal no-touch workflow,” the paper says. “Other benefits include reduction in repair charges, claims, processing costs, long inventory financing, increased volume insensitivity and reduction in technology complexity.”
Large financial institutions typically spend between US$150 million to US$175 million each year on post-trade services, the report says, which automation would substantial reduce through fewer staff and lower technology expenses.
According to the DTCC analysis, average per-firm cost savings through automation across the seven key process areas would pan out as follows:
- SSI (standing settlement instructions) reference data – US$1.5 million;
- Trade support – US$7 million per firm
- settlements – US$10.8 million;
- Agent bank fees – US$2.3 million;
- Asset servicing – US$2 million;
- Financing – $5 – 10 million; and,
- Technology expenses – $5.4 million.
In a release, Matthew Stauffer, DTCC head of institutional trade processing, said: “The findings of our survey highlight the benefits of leveraging automated post-trade solutions to reduce the costs of operational functions and the risk inherent in manual processes.”
Last year DTCC processed over US$2.15 quadrillion worth of securities transactions. The back-office specialist provides custody and asset servicing on securities issues valued at US$63 trillion across 170 jurisdictions