multi-tenant utilities: the future of securities processing

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MULTI-TENANT

UTILITIES: THE FUTURE OF SECURITIES

PROCESSING


Multi-Tenant Utilities:

The Future of Securities Processing

HIGHLIGHTS

An avalanche of new regulations and the economic

uncertainty means the capital markets and investment

banking industry is seeing a rapid shift in business

models. The industry’s focus on electronification of

asset classes and drive to reduce costs in traditional

flow business means that significant investments are

required in IT platforms to maintain scale, reduce cost-

per-trade and remain relevant in the market.

We explore a key industry trend on creating or joining a

utility platform for securities back office processing and

the associated functions. A utility is defined as shared

platform across banks or within a bank to deploy

technology services, operations services or both


Multi-Tenant Utilities are Coming of Age

The ever adapting capital markets and investment

banking industry is exploring new ventures and

partnerships to create platform services in securities

processing

The primary functions of this utility are related to

clearing & settlement, reconciliation, reference data and

corporate actions

The players in the fray include outsourcing providers,

securities service firms, product vendors, exchanges,

market data providers, depositories and Central

Counter Parties (CCPs)

Some of the established players are Broadridge,

Pershing, State Street, Global Services and Euro Clear

and Clear Stream

While securities processing utility

models are fast emerging, the key

to success is choosing the right

partnership construct and the utility

operating model.


Choosing the right service model and partnership construct

There is no single model. Banks must look at the extent of customization required in the platform for the

internal trade workflows, data confidentiality issues, and the forecasted trading volumes before choosing

the model that delivers the target savings

Bank’s Internal

Shared

Platforms

Software as a

service/ASP

(SAAS)

Platform as a

Service

(PAAS)

Business

Process as a

Service

Shared IT +

Outsourced

Shared

Operations

Shared IT +

Outsourced

Distinct

Operations

Shared IT + In-

House

Operations

Internal Shared

services center

of a bank

Hosted platform shared

by the banks for

securities

Processing

Operations processes

are managed by their

in-house teams

Internal shared

platforms across

different lines of

Business

Internal utilities are

already set-up by many

banks

IT Platform

characteristics

similar to an ASP

model

Operations processes

are also outsourced to

the provider with

distinct teams for each

client

In addition to PaaS

model, the utility

provider will pool in

shared processes for

commonly used non-

proprietary functions

Example: Instrument

data, corporate action,

event processing

Platform Control

Cost

Platform Standardization


Key Considerations for Setting up a Utility

While designing the scope of the back office securities processing utility, a combination of factors

need to be considered to achieve realistic savings targets with minimal disruption to operations.

The actual roadmap for implementation should be designed by keeping the

requirements of the seed banks and the other partners in mind.


Design Principles for building a utility

Whether to build it from scratch or partner with a product vendor? Both choices need to be carefully put

through the following evaluation framework before a decision is made

TYPICAL DECISION CRITERIA

FOR PLATFORM BUILD


Business Case for the utility

The typical savings potential that banks target are in the range of 30-50% but this can vary considerably

40-50% of savings could be achieved through lower spend for development, testing and

maintenance of the platform. A standard platform could initially have a negative impact on

Straight Through Processing rates. However, a flexible platform design could mitigate the risk

A 25-40% reduction is feasible as long as the tenant-specific extensions are kept to the minimum

10-15% savings could be expected by sharing data center, development and test environments

The potential impact of of integration and data transformation could lead to an additional cost of

5-10%


Measuring efficiency

A common practice used to measure the back office efficiency levels of banks and also the utility platform

is by using a cost-per-trade metric

Intuitively, multi-tenancy will drive higher trade volumes on the platform, which will push banks down the

cost-per-trade curve

Commonly agreed direct and indirect costs as well as the boundaries of processes need to be defined to

make sure the cost-per-trade comparison is meaningful


Conclusion

Multi-Tenant Utilities are the way forward. Multi-tenant utilities will bring the scale, best

practices and cost variabilization that will drive the industry towards consolidation around a

small set of high volume flow providers


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multi-tenant utilities: the future of securities processing

Technology

utility platform

platform services

platform build

standard platform

service shared

shared processes

utility provider

operations services