Asset Managers Slow to Adopt Trade Confirmation Technology
February 21, 2013
Automating the processing of institutional trades is now caught in a classic Wild West standoff among top-tier asset managers, large brokerages, and smaller asset management firms.
All are in need of new technology, but no single party wants to choose first and risk putting themselves at a tactical disadvantage if they make the wrong decision, according to a just released report by Aite analyst Virginie O’Shea.
“The main issue that all three parties are facing is related to cost,” says O'Shea. “The investment required to move from manual trade matching methods to electronic trade confirmation is fairly high, hence firms are wary of going down a route that their clients or counterparts choose not to follow them down. The real benefit of trade matching in this middle office context is not realized until both parties are able to electronically match trades – be that locally or centrally (and there are two different schools of thought on which of those methods is a better choice) – as risk management and efficiency benefits cannot be fully realized until that point.”
Based on Aite Group interviews with 15 institutional brokers and 14 asset managers across the globe, the report centers on common factors driving and inhibiting investment in this function, including changing regulations and migrating providers. “Most firms are waiting to see where critical mass of adoption will be achieved.’’ outside of Omgeo Central Trade Manager, “which is already the dominant player,” says O’Shea.
Long a major player in the in trade verification and matching space, Omgeo’s decision in 2008 to migrate all users of its non-U.S. matching service, known as Oasys Global, to its Central Trade Manager proved a major factor in compelling firms to reevaluate middle-office procedures. Additionally, pressure to reduce operating costs and respond to regulatory and market infrastructure change means brokerage firms and clients have small post-financial crisis headcounts and budgets to deal with their trade support process, O’Shea says.
Technology investment is a viable alternative to these shortfalls and manual processes, but with so many potential routes to follow, many firms are waiting to see which way the crowd moves rather than go it on their own.