Five trends driving the future of the middle office

Over the past year, record trade volumes, rapid technical innovation, an exponential increase in the use of market data and a dramatic shift in the way we work have thrown our industry into the spotlight and put market infrastructure to the test.

The middle office is a work horse that handles business-critical operations, yet is reliant on dated tech

A critical part of the trade lifecycle, the middle office is a work horse that handles business-critical operations such as asset allocation and confirmation yet, generally speaking, is reliant on dated technology – draining efficiency and a firm’s competitive edge.

The importance of the front office and its revenue generation often takes centre stage, leaving the middle office overlooked. However, the middle office plays a vital role in ensuring a trading business is on top of what the front office is doing as well as giving front office staff access to the best tools and insights across asset classes to enhance performance.

There have been several leaps in data and open technology which have increased the efficiency of the middle office, delivering more tailored, streamlined systems that allow staff to focus on higher value tasks. These include:

1. Real-time flow: Automation in the middle office has been critical to opening the door to more real-time flow. Allocations and confirmations that would previously been processed through emails or spreadsheets can now be done automatically in real time, not only freeing up valuable resource but allowing actionable data to be extracted and delivered where it is needed.
2. Interoperability: Banks’ needs are unique and complex, so rarely do siloed front-to-back office systems properly serve their needs. Functional modules with APIs are critical to delivering required workflows, adding functionality that can be plugged in to address specific needs. This approach requires a commitment to open standards and collaboration between vendors to support mutual client needs.
3. Standardisation: The development and adoption of industry-wide standards are a huge part of the future of market infrastructure. One need only look at FIX which has been transformative in equities and fixed income trading. The development of industry standards means that we do not have to reinvent the wheel to tackle new client demands, but can iterate and evolve technology. This not only drives huge efficiencies but having widely used standards opens greater possibilities for interoperability, integration and real time flow for the full trade life cycle.
4. Consolidation: The goal of middle and back office consolidation is to interface all front office data streams, products and platforms into one standardised dashboard with cleansed data, to give a holistic view of what a firm is doing across assets, markets and clients. Instead of siloed middle and back office services, having one cross asset system handing all electronic workflow is hugely valuable in capturing synergies and economies of scale, allowing firms to be much more focussed and competitive in the front office.
5. Cloud technology: The pandemic has been a test for market infrastructure, with systems having to do some serious heavy lifting while employees work from home and deal with significant volumes. Some systems have stumbled because of limitations, revealing the importance of modernising and ensuring they are fit for purpose. Cloud technology is now essential from the back to the front office – the more it is adopted, the greater firms’ flexibility and ability to scale and evolve.

These factors are driving the middle office into exciting new territory. The pandemic has revealed the rapid pace of innovation and the power of new cloud-based market infrastructure which has allowed firms to migrate and upgrade their systems entirely remotely. As COVID-19 subsides, it is important that businesses assess how to future-proof their systems in order to stay sharp, focussed and competitive.