December 2002
Global
Securities Processing Costs Have Come Down But Survey Predicts Further
Relocation of Back Offices
Processing
Costs for Securities trades have reduced significantly over the last 12 months
reports a new survey by Z/Yen, the City-based Risk/Reward Management firm.
The survey was based on the processing costs, headcount and trade volumes
of 14 major banks and covered 35 product types including Cash Equities, Bonds
and OTC Derivatives (Interest Rate, Equity and Credit).
Over
the last twelve months, the average processing cost for a Cash Equities trade
has reduced from $14 to $10 while a Bond Trade has reduced from $51 to $34. These
reductions have been driven by increased volume at most banks, increased rates
of STP and also by reduced external Clearance and Settlement Fees due in part to
netting agreements.
Processing
costs have also reduced for OTC Derivatives, particularly for Credit
Derivatives where the Cost per Trade has reduced from $2,650 to $1,680 with
average volumes increasing from 650 per year to 2,900 per year.
Between
banks, there was a wide range of processing costs: for Cash Equities, the
Cost per Trade for the dearest bank was 12 times more than the cheapest and for
Interest Rate Swaps, 5 times more. Although
in some cases, this is due to business mix, the difference in the Cost per Head
is also a huge driver of processing costs.
Within
this year’s studyy, the fully loaded annual Cost per Head, in London,
varied between $100,000 and $160,000. However,
banks processing outside of London have reduced their Cost per Head to $60,000.
The table below shows potential
savings for a typical bank in relocating its London operations.
|
|
Saving
in Cost per Trade
|
Annual
Savings (USD)
|
|
Equities
|
$2
|
$14
million
|
|
Bonds and Repo
|
$8
|
$6
million
|
|
OTC Derivatives
|
$160
|
$7
million
|
Jeremy
Smith, a Director at Z/Yen, said, “We estimate that 60% to 80% of back
office functions could be moved to a cheaper location.
If this happens, the impact on costs will be huge.
Many banks are now looking at locations outside of London, particularly
Scotland, Ireland and India where university educated staff are available at a
fraction of the “City of London” cost.”
| 
