A study of post-trade processes in Asia Pacific shows differing levels of automation in post-trade procedures across regional markets.
The study of 100 operations executives in 13 Asian countries was published by consultancy InsightAsia and commissioned by Omgeo. It found that reputational risk, the need to comply with increasing regulation and cost reductions are driving growth in automation levels.
Almost 95% of market participants believe improvements are required in post-trade automation.
Overall, the level of middle office automation is rated at 71% for equities and 55% for fixed income. Australia has the highest automation levels at 88% for equities and 69% for fixed income trades. Other highly automated markets include India, Hong Kong, Singapore, Japan, Korea and mainland China, which scored in a 70-80% band for equities and 50-70% for fixed income. The markets which have the lowest level of automation are Taiwan, the Philippines and Vietnam.
The study also found domestic brokers lag their international peers in trade automation, particularly for fixed income transactions where manual trade matching is more than twice as prevalent amongst domestic brokers compared to international brokers.
The firms surveyed cited a number of business drivers for increasing middle-office automation, including reputational risk, regulatory compliance and cost efficiencies:
Firms highlighted the need to achieve compliance with global regulations and initiatives. Two thirds of investment managers and half of brokers rated compliance with global regulations and initiatives as the top driver for pursuing greater levels of automation in the middle office. In particular, Basel III and Dodd Frank requirements are prompting market participants to automate, while a key driver for hedge funds is the European Union’s Alternative Investment Fund Managers Directive.
One third of market participants outsource or offshore core middle and back office activities. Respondents cited scale (38%), cost reduction (28%), risk reduction (19%) and productivity (16%) as the main benefits.
Within trade matching processes – trade notification, trade allocation, confirmation and post matching communication – post-matching communication achieved the highest automation score at 7.3 (out of 10) for equities and 6.1 for fixed income, whereas trade confirmation scored the lowest, at 6.9 for equities and 5.2 for fixed income.