How, where and why are financial services firms transforming their operating models today - in an effort to drive efficiencies, increase transparency and reduce risk?
Tracking and measuring the total costs of the trade have never been more important in the financial markets.
Whilst trading volumes have continued to grow globally, the rise of low-cost ETF platforms have driven fund managers and brokers to seek out ever greater efficiencies in the last decade. At the same time, new regulations have been launched globally to drive transparency on this exact point (e.g. the MIFIDs). And with economic uncertainty growing, 2020 looks set to be a year of unprecedented cost control.
Settlement, Fails Management, Middle Office, Securities Lending, Corporate Actions and Funding are impacted the most, with FX remaining a key issue for Investors.
Our research demonstrates the high number of Investors who are still unsure of the full impact of T+1 and how to best prepare for change in terms of cost, readiness and timing.
However, Custodians and Investors carry a heavier burden overseas, with smaller firms being hardest hit by the effects of T+1.
Around 40% of our market is failing to track best execution for FX today – with 28% of investors missing this core metric. But with more than 50% of banks tracking TCA based on multiple time-stamps, is there an imbalance across the industry?
It costs more to source a corporate action event than it does to process it today. And whilst data sourcing only accounts for 26% of the total cost of a corporate event, it costs another 30% to clean and interpret.
Despite 71% of the industry seeing value in the metric, it was a great surprise to learn that only 30% of our industry is tracking a cost per trade in 2020 – least of all COOs. Although investors see costs per trade as closely linked to regulatory compliance (notably MIFID), brokers see accurate management of their trading costs as a source of competitive advantage.
Yet neither side is tracking more than half of their real trading costs. Misled in some cases by MIFID’s Transaction Cost Analysis guidelines, 50% investors are missing up to 45% of their costs behind every trade – overlooking out of pocket expenses and IT system costs most of all. On the sell side, half of the industry is missing up to 28% of their costs per trade – with the costs of risk and capital being the major areas of oversight.
These critical gaps in cost tracking are an urgent problem today: giving rise to incorrect resource allocations and driving the wrong behaviours. As new regulations (such as CSDR) take effect, poor cost visibility will mean that both the buy- and sell-sides face cost increases of up to 60% – without being able to track or control the cause.
Beyond TCA, only a small minority of us is tracking the true cost of an FX – well below the global benchmark from our 2020 Grey Costs per Trade research. IS FX an overlooked asset class?
Tracking and measuring the total costs of the trade have never been more important in the financial markets.
Whilst trading volumes have continued to grow globally, the rise of low-cost ETF platforms have driven fund managers and brokers to seek out ever greater efficiencies in the last decade. At the same time, new regulations have been launched globally to drive transparency on this exact point (e.g. the MIFIDs). And with economic uncertainty growing, 2020 looks set to be a year of unprecedented cost control.
Keep in touch with our latest updates and insights
