Operations
The busy world of the back office
If you delve into the murky world of investment banking, pretty soon you’ll undoubtedly hear the terms ‘front office’, ‘middle office’, and ‘back office’. When people talk about the front office, they’re talking about the ‘sexy’ areas of investment banking – mergers and acquisitions, or sales and trading. When people talk about the middle office, they’re talking about functions like IT, accounting (finance) and risk management (which we cover in other pages of this book). And when people talk about the back office, they’re talking about operations. Unlike the people in the front office, people working in operations don’t liaise with customers to generate revenues and profits for the bank. Instead, the division is a support function. Operations professionals support people in the front office to make sure everything works smoothly and the bank gets paid. The main business of operations is clearing and settling trades. Clearing trades involves making sure that the records one bank has kept of the sale of a financial security match those of the bank or organisation it sold the security to. In most cases, simple trades are cleared automatically through huge electronic systems such as the Brussels-based Euroclear. Settlements professionals ensure that stocks or shares bought and sold by the bank’s traders are exchanged for the correct amount of money. ‘Settlements’ covers everything from preparing the documentation required for a sale to making sure the bank has been paid for all the shares it has sold and bought. “The investment banking operations (IBO) support function provides transactional support, ensuring documentation and settlement of transactions in a controlled and regulatory-compliant manner. The world of global financial markets is fast, demanding and competitive, and the operations division plays an increasingly important role supporting business growth and being a key differentiator for client service,” says David Bromley, director and chief operating officer of global business services at Deutsche Bank, Asia-Pacific.
Roles and career paths
As a junior working in clearing and settlements, your job will mostly involve intervening when computer systems fail. Every now and then automatic clearing systems break down in a so-called ‘exception’. Clearing specialists spend most of their time dealing with these exceptions and trying to work out what went wrong. If you work as an exception manager on a settlement desk, you might find yourself talking to traders who claim to have sold shares for US$3 each when the buyer says the price was only US$2, for example. However, there are some areas of the market where clearing still isn’t automated, and if you work in one of these you will be expected to do a lot more than simply sort out failures in the electronic clearing and settlements process. In particular, the huge US$320 trillion daily turnover in the Over-The-Counter (OTC) derivatives market still relies heavily on a lot of manual processing, and this is creating problems. Moves are being made to automate the clearing and settlements process in the OTC derivatives market, but until this happens people are needed to fill in and fax through the documentation. At the time of writing, moves were being made to regulate the OTC derivatives market, which would require a proportion of those to be cleared through central counterparty clearing houses in a bid to increase transparency in the industry. As you work your way up the operations hierarchy you will progress to more strategic roles, looking at issues such as how to streamline the exceptions process or which functions should be moved offshore.
Pay and bonuses
Since it’s not revenue generating, people in the operations divisions will never receive bonuses as substantial as those enjoyed by their colleagues in the front office. On the plus side, your working hours will be shorter – you’re not likely to spend most of your life camped at your desk like someone in M&A.
Skills sought
When filling operations roles, banks look for a combination of problem-solving, interpersonal and time management skills. In a role where accuracy and consistency are key, attention to detail is also a must. “Working in operations requires a diverse range of skills from project, business and people management through to documentation skills, technological capability, control, regulatory knowledge and client service,” says Bromley. Good communications skills are also important. “It is not just about speaking to people; it is about building relationships and earning respect,” says Steve Morgan, global head of equity middle office at Citi. “The back office and middle office are the cogs right at the heart of the wheel. We are responsible for taking information, processing it, and disseminating it across many different platforms.”
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