Middle Office Management: A Challenge and Opportunity!

Typically, equity trading brokerage firm activities are accomplished by three interfaces:

Front Office, Middle Office and Back office. Front office is responsible for taking orders from client and their execution in stock exchange. Once order is executed; it becomes a trade and handed over to Middle Office. Middle Office processes the trade, calculate commission and other charges, seek confirmation of client and finally post the trade to Back office that ensures timely settlement of the trade with client and exchange.
Typically Middle office performs following activities
1)Figuration: Trade commission and charges (exchange fee, country tax etc) are calculated. Trade Confirmation is sent to the client. Client may reject the trade if he does not agree with any trade attribute like commission, share quantity or charges. Any such discrepancies are resolved with client by amending the trade and seeking confirmation again.
2)Allocation: Trade is allocated to sub-accounts of client. For example Fidelity may order 5000 quantity of Infosys stock and allocate 2000 of these shares to its equity fund and 3000 to its balanced fund. In this way the trade is associated with main account of Fidelity while it is allocated to sub-accounts (Equity fund and balanced fund).
3)Confirmation: Allocation Confirmation is send to client.
4)Booking or Posting: once client affirms all allocations; trade is sent to Back office for settlement.

Electronic trading increases trade volumes significantly every year. Sharp increases in electronic trading and trading volumes have stressed most legacy middle-office systems, causing them to collapse. In addition, firms seek to invent new instruments, but adding these instruments to their existing infrastructure proves, at best, a long-term, expensive project. At worst, it proves impossible. This costs firms money, in terms of lost opportunity and over-burdened resources.
Many other factors contribute to this newly focused attention on the middle-office. Firms have increased their use of derivatives, but again, existing middle-office systems simply can’t handle these complex instruments. And, asset managers place ever-increasing service requirements on banks, including shortened processing cycles from trade execution to booking, requiring higher degrees of automation and performance across the trade management infrastructure.

An Opportunity to Stand Apart:
Changes in the trade management environment provide an opportunity to differentiate a firm by delivering world class, unparalleled trade management services:
Drive more revenue through a hugely scalable trade management platform
Add and process new instruments on demand
Increase trading volumes without increasing staff
See where a trade stands in real-time, on demand
Deliver perfect trade management service to your clients

Challenges to be met:

For a broker/dealer, trade processing is one of the foundations of success. But seamless and effective trade management is often difficult to achieve with the legacy middle-office systems available. Most firms have multiple trade processing systems that are hard to integrate and manage. Like a combination of a few common topologies:
Divisions by line of business or desk (single stock, program trading)
Divisions by functional area (allocations, confirmations)
Divisions by geography (US, Europe, Asia)
Embedding into front office systems, and therefore support for only those instruments traded through those systems – a problem especially common in fixed income trading systems.
Inevitably, even if one system is excellent, in combination these systems have performance bottlenecks and present scalability issues, with no easy solution.
Globally, One system is still a huge challenge.