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Outsourced trading:
The opportunities for
buy-side dealers
Gary Paulin, global head of integrated trading solutions at Northern Trust Capital
Markets, explains how the rise of outsourcing in the buy-side front-office presents
dealers the opportunity to be part of the solution.
I
nnovative ideas tend to go
through a process of ridicule
and rejection before they
become self-evident. Take cloud
computing – as recently as 2014,
the idea of entrusting critical
infrastructure to third parties
sounded outlandish. Today, even
conservative-minded organisations
recognise the cloud’s role in
helping drive down cost, enhance
efficiency and provide scale
without compromising security or
responsiveness.
The idea of outsourced trading
has faced similar suspicion but, at
Northern Trust, we see multiple
factors converging and driving
adoption, to the extent that it is
likely to become an industry norm.
Big outsourcing waves have
followed a fairly consistent
pattern over the last few decades,
beginning in mature bull markets
rife with cost inflation, then
accelerating as they end, and costs
become magnified. This is today’s
context; extreme margin pressure
from decreasing fund flows,
competitive pressure on fees and
64 // TheTrade // Fall 2019
stalling AUM growth.
What is different, however,
are the challenges presented
by passive competition, digital
innovation and new regulation.
Renewal of focus on accountability
In Europe, the greatest of these
factors is regulation. To rebuild
the trust lost after the global
financial crisis, regulators continue
to pursue initiatives to promote
transparency, fairness and good
governance.
A notable example is the UK’s
Senior Manager and Certification
Regime (SMCR), which seeks
to change corporate culture by
making individuals personally
accountable. We believe this type
of regulation is already having
a profound impact on decision-
making and similar legislation is
already appearing in other regions. Gary Paulin, global head of integrated
trading solutions, Northern Trust
Capital Markets
Outsourcing activity, not
responsibility
Our experience is that senior
managers often feel uneasy about
being held directly responsible for trading, especially with regulation
so focused on operational
resilience. They have concerns
around key person risk, business
continuity, overnight orders and