White Papers
REAL TIME, REAL COSTS, REAL PROBLEMS
Real time, real costs, real problems - Reducing the TCO for trading and risk systems
The financial crisis has seen global Corporate and Investment Banking (CIB ) revenues decline by more than 60% from their peak in 2007 and it will be 2012 to 2013 before recovery is expected. In 2009 this decline has seen the revenue mix change: with an increase in volume products such as FX and rates, a significant drop in proprietary trading, a decline in credit as well as a deleveraging and unwinding of "toxic assets".The focus in structured products has also shifted - from an instrument to leverage a bank's capital back to their original purpose of hedging and client intermediation. This move to high volume flow products has created a pressing need for firms to understand the real costs of deploying and maintaining their trading and risk management application and server estate.
Total Cost of Ownership (TCO ) models in the past often failed to fully identify all the implicit cost elements or properly allocate explicit ones. This led banks in the 2003 - 2007 period to acquire best of breed trading and risk architectures to support their complex and profitable proprietary trading activities. This in turn has led to a fragmented system landscape - by asset class / instrument, geography, line of business; generally supplemented by boutique or home grown solutions. Yet, often low initial deployment costs have brought high hidden long-term costs which has a negative impact on profits. This white paper describes an approach to TCO based on the concept of an 'equivalent annual trade cost' that will provide financial institutions with a solid basis to assess when they should look to migrate and consolidate their trade and risk management applications. We call it the Total Cost of Trade model, where a trade may consist of multiple underlying trades generating numerous transactions, all of which need to be accounted for in cost terms.
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