[ O P I N I O N
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F R O N T-T O - B A C K ]
WHY A FULLY-
INTEGRATED
FRONT-TO-BACK
OFFERING IS NO
SIMPLE TASK
Data integrity, client mobility and technical complexity are all hurdles
that need to be considered in the new front-to-back trend sweeping
the industry, writes securities services veteran John Gubert.
B
ack-to-front is the new mantra of
the business. There is logic in this.
Modern technology means that
front-to-back portfolio management sys-
tems have become a more viable and com-
mon deployment option for the buy-side.
There is definitely cost advantage in the
new structures but crossing the Rubicon
to a fully-integrated back-to-front plat-
form is no simple task. The models are
not all alike. State Street has its ‘One State
Street’ offering to provide a fully integrat-
ed front-to-back, plug-and-play service,
linking custody and fund administration
with Charles River’s Investment Manage-
ment System. Northern Trust launched
its Integrated Trading Solutions last year,
an outsourced trading service combining
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Global Custodian
Spring 2020
its equities and fixed income capabilities
with middle- and back-office services. It
also integrated its middle-office technol-
ogy with a number of order management
systems (OMS) providers, including
Bloomberg, focusing on trade capture,
data synchronisation and reconcilia-
tion. BNP Paribas utilises Broadridge’s
Portfolio Master, which combines order
management, portfolio management and
risk management into a single application,
giving BNP a range of new front-office
capabilities alongside its custody and fund
administration services. BNY Mellon has
struck an alliance with BlackRock, where-
by they provide mutual clients with data
insights, accounting and asset servicing
tools as an addition to those already avail-
able on BlackRock’s Aladdin portfolio and
risk management platform.
But there are issues to overcome for all
these proponents of back-to-front. I am
sure a longer list could be drawn up, but I
see four major challenges. The first is data
integrity. The second is client mobility.
The third is technical complexity. And
the final one relates to client service
capability.
As the front- and back-office of banks
align on product and P&L, there have to
be questions around maintaining the con-
fidentiality of client data. It is obviously
dangerous and illegal for client proprie-
tary information – such as lines of stock
overhanging the market, lending positions
or derivative plays – to be visible to the
trading arms of the banks. As the historic
barriers between the securities servic-
es’ product and the front-office service
providers are removed, new protocols are
needed to ensure that the historic strong
link between front-office and trading
arms remain inviolate. We also need to
make sure that the data held for clients is