Turning securities services profitable
How to unlock added value in post-trade operations
For a long time, improving the profitability of securities services has not been a major priority for banks, whose primary focus has been on front office costs and revenues. By comparison, post-trade activities account for a relatively small share of banks’ overall cost base.
An initial mind shift occurred after 2008, when the average scale of securities services increased, due to the consolidation of post-trading activities between banks and a rise in outsourcing. Yet despite these efforts, the average back office cost per trade among Europe’s leading banks has hardly changed in the past 12 years, because most cost-cutting initiatives have failed or been deprioritized.
We strongly believe that COVID-19 and the imminent likelihood of a global recession will trigger a renewed cost-cutting and consolidation drive in post-trading activities. Back office costs will be highly relevant to total returns in a banking market under extreme stress.
The measures set out in this publication offer a roadmap for making profits out of flat or loss-making post-trade services such as clearing and custody. Overall, they provide a critical example of how banks can convert costly middle and back office post-trade operations into a reliable, long-term “profit center” as a global recession looms.
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