Sectors explained: Investment Banking Operations

eFC logo

Operations

The unsung heroes in a bank’s back office

Once you delve into the world of investment banking, you will soon hear the terms ‘front office’, ‘middle office’ and ‘back office’.

When people talk about the front office, they’re talking about the ‘sexy’ areas of investment banking – M&A, capital markets or sales and trading (covered earlier in this guide).

The Overview 6

When people talk about the middle office, they are referring to functions such as IT, accounting (finance) and risk management (which we also deal with in other pages of this book). When they talk about the back office, they mean operations.

Unlike the people in the front office, people working in operations do not liaise with clients to generate revenues and profits for the bank.

Instead, the division is a support function – operations professionals support people in the front office to make sure everything works smoothly and the bank gets paid.

The main business of operations is clearing and settling trades. Clearing trades involves making sure that the records one bank has kept of the sale of a financial security match those of the bank or organisation it sold the security to.Regulators are demanding more and more detail in the way banks document and report their trading activity, so operations divisions have grown in importance over the past few years.

‘Settlements’ covers everything from preparing the documentation required for a sale, to making sure the bank has been paid for all the shares it has bought and sold.

Settlements professionals ensure that stocks or shares bought and sold by the bank’s traders are exchanged for the correct amount of money.

Roles and career paths

As a junior working in clearing and settlements, your job will mainly involve intervening when computer systems fail.

Every now and then, automatic clearing systems break down in a so-called ‘exception’. Clearing specialists spend most of their time dealing with these exceptions, trying to work out what went wrong.

If you work as an exception manager on a settlement desk, you might talk to traders who claim to have sold shares for $3 each when the buyer says the price was only $2, for example.

However, there are some areas of the market where clearing is not automated and if you work in one of these, you will be expected to do a lot more than simply sort out failures in the electronic clearing and settlements process.

In particular, the huge $600 trillion over-the counter (OTC) derivatives market still relies heavily on a lot of manual processing, which is creating problems. Moves are being made to automate and centralise the clearing and settlements process in the OTC derivatives market but until this happens, people are needed to fill in the documentation.

Closer to the trading floor is the role of the trade support officer, which can cover a range of different asset classes, from equities and bonds to commodities or derivatives. Here, you are in the firing line for any queries a trader might have – everything from reconciliation issues to discrepancies between the various counterparties involved in the trades.

As you work your way up the operations hierarchy you will progress to more strategic roles, looking at issues such as how to streamline the exceptions process or which functions should be moved offshore.

Pay and bonuses

Operations professionals don’t earn the big bucks seen in the front office, but pay can still be good – particularly for those with specialist expertise. The general rule is the more specialist, or exotic, the product, the higher the pay.

Starting salaries are generally around $50- 60k, but bonuses are small compared to the front office at 5-15% of base pay. More recently, however, bonuses have generally been eliminated in favour of slightly higher salaries.

In the UK, a mid-ranking settlements professional working on equities or fixed income products can expect £45-55k ($68-85k), rising slightly to £45-60k ($68-92k) for those working on derivative products, according to figures from recruiters Robert Walters.

In the US, an associate to VP-level employee in cross-product settlements can expect $60- 150k, according to Robert Walters. In Singapore, a manager working on equities/fixed income settlements can expect S$70-130k ($55-100k), rising to S$110-150k ($87-118k) for those with derivatives knowledge.

Skills sought

While operations positions are very processdriven, which requires obsessive attention to detail, accuracy and consistency, it’s also an area that is surprisingly fast-paced, especially as banks are always grappling with new regulations and looking for ways to make their back office more efficient.

“You may face new issues and regulations, and may be assigned fast-changing priorities. You will need to stick to the policies and principles but, where necessary, be flexible enough to make changes,” says Shoko Mizuhaya, director, group operations manager, derivatives at Bank of America Merrill Lynch.

While operations professionals have few clientfacing responsibilities, they are essentially ensuring the smooth running of the organisation and therefore any problems they solve help enhance the ‘client experience’.

Good communication skills are therefore important, because people in operations deal with many other divisions and functions within the bank. Would you be comfortable, for example, dealing with the demands of an impatient trader?

“It is equally necessary to have strong communication skills as the role requires reaching out to a number of stakeholders whose interests may not be the same as yours,” says Mizuhaya.

Even though operations professionals will not be managing money, they still need a keen sense of risk and reward, believes Kristi Tange, head of liquidity and collateral operations, EMEA, Goldman Sachs.

“Risk management is integral to everything we do - we look for individuals who are motivated to collaborate in the design of solutions for business processes, and display strong leadership and integrity,” she says.

 

Related articles

Popular job sectors

Loading...

Search jobs

Search articles

Close