Broadridge Multi Asset Class Conundrum Whitepaper

TheMulti-Asset
ClassConundrum:
Solving Post-Trade Complexities
Across Business Lines

© 2013 Broadridge Financial Solutions Page 1
The Multi-Asset Class Conundrum: Solving Post-Trade Complexities Across Business Lines
Executive Summary
As trading across multiple asset classes increases, operating in silos is no longer
an effective strategy for optimizing operations, mitigating risk and capitalizing
on market opportunities.
In less than ten years, multi-asset class trading has exploded, as buy- and sell-side firms utilize an
increasingly broad array of investment strategies to improve performance and exceed their peers.
This diversification has occurred across both asset segments and geographies, as financial firms
seek out new opportunities for growth.
In a decade of low interest rates, regulatory change and cost-reduction mandates, the growth
in trading of alternative assets [Exhibit 1] has been a response by many firms, including those in
traditional equities and debt markets, to improve returns. This is also reflected, for example, in the
quadrupling volume of futures and options contracts traded from 2003 to 2011 [Exhibit 2].
Exhibit 1: Global Growth by Value Across Asset Groups (2005–2011)
Financial firms are looking to alternative asset classes for growth opportunities
and improved returns (all amounts in USD trillions)
Compound Annual Growth Rates (CAGR) 2005 - 2011
FX - 10% OTCD - 14% Listed F&O - 13% Debt - 10%Equities - 11%
Notional Traded Value
of Foreign Exchange
(Spot and OTC)
Source: TABB Group, BIS, WFE 2005 2011
OTC Derivatives
Notional Outstanding
of Listed Futures
and Options
of Equities
Global Debt
Outstanding
798
1,402
299
648
126
263
46 88
12 21

© 2013 Broadridge Financial Solutions
Exhibit 2: Global Volume of Listed Futures and Options Contracts (2003–2011)
This widening of investment strategies and search for enhanced returns are placing
unprecedented demands on sell-side brokers and banks. Firms are increasingly challenged in
providing the right suite of services to clients in an era of new regulations, changing investor
preferences, and the growing adoption of electronic trading channels. Providing clients with
access to new markets and product segments is a powerful driver of revenue stabilization
and growth.
These client and regulatory pressures are being felt at a time when industry revenues are
declining—increasing the need to improve both client and proprietary returns. Simultaneously,
brokerage firms are being forced to spend on complying with the myriad of regulatory initiatives
being rolled out and building operational infrastructures to support the demands of their
clients. This puts additional onus on operations to be more efficient; otherwise, operating
margins cannot be maintained or improved.
To remain competitive and become more efficient, leading firms are re-evaluating antiquated,
silo-based operational models that have effectively replicated front-to-back office services
across each group of asset classes traded. They are redesigning front- and back-office
technology infrastructures, and consolidating operations to create processing systems able to
support client needs around multiple asset segments such as equities, fixed income, FX/money
markets and derivatives. The ability to lower costs, enhance service and improve operational
efficiencies is driving firms to implement comprehensive asset-agnostic processing frameworks.
Firms are seeking alternative investment strategies to achieve greater results
(illustrated in millions of contracts)
Options Futures
25,000
20,000
15,000
10,000
5,000
2003 - 2011
CAGR 21%
Source: TABB Group, WFE

The Growth Of Multi-Asset Trading
Trading strategies have become more complex, as directional strategies are being combined
with hedging activities that often encompass multiple asset segments and structured products.
Not only are portfolio managers seeking to enhance returns by entering foreign markets, they
are also expanding strategies to include alternative asset classes, including derivatives, foreign
exchange and fixed income instruments denominated in multiple currencies. This shift in trading
strategies has implications for the business and its operations.
Brokerage firms moving into new regions and assets are challenged to support the greater
diversity of trades. Managing the trading needs for the broad range of new assets across
multiple geographies is taxing existing infrastructures, especially since clients are using
strategies that can encompass multiple asset types, regions and currencies.
For many sell-side firms, each asset group is supported by often outdated, silo-based
architecture and discrete operational groups. These independent operating groups make it
difficult for the firm to represent and adequately support multi-asset class trading strategies
and consolidated reporting (by desk or by client) that combine a number of instrument types,
as these are each dealt with by separate systems and operating models. This is a major source
of risk and avoidable cost, and leads to a disproportionately high effort just to meet baseline
operational and client needs.
Firms need to invest in staff, systems and processes that can support the transformational
shift in trading activities, even before they are certain how the new market structure will
develop. As global regulatory initiatives transform over-the-counter (OTC) activities, a complex
market structure will grow even more complex as new trading venues, central clearing facilities,
data repositories and market utilities begin operating. Providing access to the vast array of
new industry utilities will require significant resources that many firms are unable to provide.
Firms with the capabilities to support the new market requirements cost-effectively will have a
significant advantage over the competition.
Key Factors Driving the Need for Creating a Post-Trade Processing Center
of Excellence
1. An Increased Focus on Risk Reduction Client Service
Risk reduction and control is crucial and continues to gain importance in an operational context.
Most firms have inadequate operational systems and processes for delivering risk control and
reduction, especially where a client relationship extends across multiple assets and geographies.
Finding a lingua franca across systems, operations and asset classes is difficult due to the
varying ways in which different systems represent the components of a trade and its lifecycle
events. Without a common, consolidated view, it can be onerous, or even impossible, to identify
operational risks properly.
Firms are also seeking to leverage technology for more efficient work flows, and better
operational oversight, to support client and regulatory requirements in compressed timeframes.
Periodic batch processing can no longer support trade velocities arising from latency-sensitive
strategies used by sophisticated trading firms, especially as these strategies move into new
assets and regions where greater price volatility can be encountered.

2. Globalization Accentuates the Need for Efficiency
As investment managers explore new ways to enhance returns, institutional brokers are required
to access new markets, thereby driving up their costs. Capturing business revenues from new
markets requires investment. These investments can no longer be viewed solely on the basis of
their top-line impact. The possible negative impact on margins means that firms must ensure both
running costs and overheads are minimized as part of their business case. This increases the need
to focus on operational efficiency across the full client relationship and internal business lines.
Firms offering trading services across the globe need local expertise, with staff fluent in the
nuances of the local market structure, including both listed and OTC markets. Connectivity to
multiple exchanges, clearing houses and trading counterparties in the cash securities markets
may be relatively painless, but the level of complexity in trading and processing OTC instruments
is several magnitudes greater, especially as the regulatory environment evolves.
3. Rising Cost Pressures Drive the Need for Centralized Operations
Cost reduction through centralized operations and the automaton of manual processes is the key
to future success [Exhibit 3]. The costs of operating in, or expanding into, new asset segments and
markets can be prohibitive for most firms, and go far beyond providing staffing or compliance
expertise. Expanding service offerings to include a new asset group in a core market involves
considerable requirements, including not only specialized staff across the front- and back-office,
but also systems that can support the trade processing workflow from execution to settlement.
Exhibit 3: Financial Firms' Post-Trade Automation Activities (2012)
Brokerage firms and banks are challenged to support rapid diversification and comprehensive
services to retain and attract new clients while managing to limited resources. As client
diversification continues to grow, firms need to be able to scale their operations. Simply
adding headcount is not enough.
Financial firms allocated USD 12.1 billion on technology to support post trade automation activities
in 2012 (all amounts in USD billions)
Equities
Source: TABB Group
Sell-Side Buy-Side
OTC Derivatives Fixed Income Exchange Traded
Derivatives
OtherFX/
Commodities
$3.4
$3.1
$2.2
$1.6 $1.6
$0.1
2.8 2.6
1.7 1.2 1.3
0.6
0.5
0.5
0.4 0.3

The need to improve and expand their capabilities is also critical for firms looking to grow
their client rosters. Providing access is just one part of the puzzle, however, and as firms roll
out support for new industry segments, they need to ensure that they are meeting customer
expectations through an efficient, well-managed service and driving the firm’s own profitable
growth. All it takes is a bad trade price or fail in the back-office and clients quickly lose patience.
At best, a firm may endure responsibility for a fail. At worst, the client shifts business to a
competitor, with that revenue likely never to return.
The Advantages of a Multi-Asset, Post-
Trade Processing Center of Excellence
A consolidated, multi-asset global processing solution affords firms enhanced business
opportunities, streamlined operations and lower operating costs. Resources once allocated to
discrete, yet replicated, operational activities can be redirected towards meeting expanded
customer demands and expanding brokerage revenues. In so doing, brokers are creating a flexible
and scalable framework that is critical in their efforts to simplify operations—in effect, creating
simplicity out of complexity.
Improved Risk Management
As volumes increase and diversity of trading expands to include a wider and more exotic
range of instruments, a holistic, multi-asset class, post-trade solution enhances risk management
through streamlined automation, state-of-the-art workflows and by optimizing straight-through
processing (STP) rates. This non-siloed approach enables a consolidated view of positions
and client risk exposure, enabling firms to immediately flag and resolve exceptions through
customizable business rules to reduce risk and capital exposure. In real time, firms can review
operational risk parameters encompassing the entire processing infrastructure instead of
one segment of the business.
Improved Margins
Managing disparate regulatory regimes while supporting an ever-expanding range of asset
types provides an essential client capability and additional revenue streams. Utilizing a
consolidated multi-asset class operating model for these additional asset types significantly
improves margins over silo-based environments by eliminating redundancies.
Enhanced Client Capabilities
Providing clients seamless access to new investment opportunities ahead of the competition
will be a competitive necessity for both brokers and their clients. The first-mover advantage will
reward early entrants into any marketplace.
Being able to differentiate service offerings by providing access to emerging product segments
or into new asset segments provides brokers with a considerable advantage, especially if the
client already has a relationship with the firm. It is hard enough trying to win new client business;
turning away existing client business simply opens the door to the competition.

Flexibility for Scalable Growth
The ability to consolidate applications and create consistent operations across the firm streamlines
information flows and provides processing consistency and efficiencies. Disparate legacy technical
structures inhibit innovation and increase the costs of modernization while reducing efficiencies,
with little ability to scale. At the same time, the costs of supporting legacy operations will continue
to rise, a consequence which is simply not sustainable in the long run.
Eliminating redundant processing requirements due to incompatibility between disconnected
platforms allows firms to reduce processing timelines, lower costs associated with supporting the
myriad of applications and minimize operational risk exposures. It also sets the foundation for
future growth through greater scalability of processing initiatives.
A scalable and flexible processing infrastructure capable of supporting a growing array of
alternative assets is essential for firms to attract new clients, both in domestic as well as foreign
financial markets. These systems will be the foundation that facilitates growth opportunities
and provides processing efficiencies for clients, allowing firms to lower their operating costs and
provide improved service levels.
Increased Adoption of Multi-Asset Class
Technology Providers
By 2014, 61% of all Information Technology expenditures of financial firms will be
directed to technology providers.
As operational requirements become more complex, financial firms have commenced identifying
core competencies and processing deficiencies in order to best support technology requirements.
The financial industry is increasingly turning to external providers in order to obtain best-in-class
support while at the same time lowering technology costs.
Research from the TABB Group predicts that by 2014, 61% of all financial firm IT expenditures will be
directed to external providers, a trend that has only accelerated in recent years. Exhibit 4 illustrates
internal and external information technology spending ratios from 1995 to 2014 (projected).

Exhibit 4: Percentage of Internal and External IT Spending Ratios 1995–2014 (Projected)
According to Andy Nybo, Principal Head of Derivatives at TABB Group: “Solving post-trade
processing complexities across business lines requires an experienced partner with the ability to
provide global multi-asset class solutions. You should look for a partner with proven functional
expertise and an unparalleled understanding of building infrastructures to support all aspects of
your operations.”
Achieving Multi-Asset Class, Post-Trade
Consolidation in Four Steps: Technology
Operations, Expertise, Risk and Cost
Financial firms are in a constant battle to adapt to the shifting global market structure, as trading
volumes, regulatory initiatives, regional expansion and assets being traded are forcing firms to
re-evaluate how they manage operations. The need for integrated technology has never been
greater, with firms across the industry allocating growing levels of resources to support their
technology efforts.
In light of increased cost pressures and regulatory requirements, capital markets sell-side
firms should assess their current multi-asset class processing capabilities across four key areas:
Technology Operations, Expertise, Risk and Cost.
Financial firms are turning to external IT providers to manage the rising complexity
of global operations
Internal External
39%
61% 56% 47% 44%
41% 39%
51%
Percentage of internal and external IT spending, 1995-2014 (projected)
44% 49% 56%53% 61%59%
Projected
Projected
Source: TABB GroupSolving post-trade
processing complexities
across business lines
requires an experienced
partner with the ability
to provide global multi-
asset class solutions.
Andy Nybo, Principal Head of
Derivatives at TABB Group

STEP 1: Develop a Multi-Asset Class Processing Roadmap
Technology and operations provide the infrastructure and scale for supporting post-trade
operations across asset classes. Brokers are rapidly discovering the dangers of cobbling together
legacy systems and are re-evaluating approaches based on the changing requirements of their
business, their clients and regulators. The need to create systems and procedures that incorporate
disparate workflows across the enterprise is becoming a bigger priority, as firms seek to maximize
internal efficiencies and reduce operational bottlenecks.
Firms need to assess their current or planned capabilities to identify operations and technology
gaps that increase risks to the firm.
Self-assessment: Technology Operations
Key questions firms should ask themselves to evaluate their multi-asset class, post-trade
technology and operations are:
• Is there task-based or process-based redundancy across our post-trade operations
and technology due to a silo-based structure?
• Does our multi-asset class solution enable our firm to achieve a high level of control
and risk management?
• Do we currently have the ability to rapidly support new regulations with the
scalability and flexibility to expand into new asset classes and markets or introduce
new counterparties?
• Are we effective in handling the specific exception management processing requirements
for all our needs globally?
• Are we adequately positioned to support a consolidated, multi-asset approach to
collateral management and financing?
• Does our multi-asset class, post-trade technology integrate easily into other critical
systems and vendor technologies while fitting into our future architecture?
• Do our multi-asset class processing technology and operations support
the evolving needs of our clients and our expanding global business community?
• Can we provide operational support in multiple time zones, or do our
regional offices operate in silos?
STEP 2: Evaluate Your Firm’s Expertise
Multi-asset class processing expertise encompasses more than strong operational knowledge,
as trading across asset classes extends beyond connectivity to exchanges, clearing houses and
trading counterparties. Access to a flexible pool of resources that are experienced in multi-asset
domain requirements, including the ability to evaluate and adopt the industry's best practices
across business units, is critical.

Self-assessment: Expertise
Key questions firms should ask themselves in evaluating their multi-asset class, post-trade
expertise are:
• Does our staff have the specialized multi-asset class, post-trade knowledge and
experience to support our evolving business strategy and client needs?
• Is our team aware of best-in-class, multi-asset trade processing practices and
experienced in evaluating and implementing them?
• Does our operating model support continued expertise development in the
multi-asset class processing domain to meet changing regulations?
• Do we have the staff to oversee the multi-asset trading at an enterprise level and
identify and understand gaps in the business process?
• Are we able to operate around the clock with global subject matter experts?
STEP 3: Evaluate Your Operational Risk Management
A necessary consideration for firms evaluating their multi-asset class processing capabilities is risk
management. A post-trade center of excellence can enhance risk management by: 1) identifying
potential exposures through a central view across client and counterparty relationships before
they occur; and 2) providing the expertise to appropriately respond to exceptions and issues
before they escalate costs and risks.
Self-assessment: Risk
Key questions firms should ask themselves in evaluating their risk management efficiency are:
• Do our post-trade systems, capabilities and measurements adequately allow us to monitor
operational and counterparty risk in real time around the globe?
• Do we have the scalability required to meet compliance and regulatory demands?
• Will our firm be exposed to increased operational risk if key staff members unexpectedly
leave the firm? Do we have a contingency plan in place?
• Can our multi-asset class capabilities handle the specific processing requirements of all
asset classes and report global activity in clients’ preferred currency?
• Can we reduce our risk exposure by re-evaluating our operating model?
STEP 4: Assess Your Costs
A final consideration for firms evaluating their multi-asset class processing capabilities
involves costs. In an era of mounting budgetary pressures, firms must carefully weigh their
ability to support and enhance multi-asset class processing while achieving cost savings and
conserving capital.

Self-assessment: Cost
Key questions firms should ask themselves in evaluating the cost of supporting their post-trade
capabilities across asset classes are:
• Are we able to reduce our costs in excess of 30% and minimize ongoing investments
while continuing to optimize capabilities?
• How much time and money are we spending on multi-asset class processing, and
can we reduce operating costs by re-evaluating our operating model to eliminate
redundant resources?
• How quickly can we drive down costs without reducing service and increasing risk?
• What is the opportunity cost and potential exposure of maintaining separate operational
and technology silos split across business lines?
• Do we have the resources to support new products and regulatory requirements in a cost-
effective manner?
• Are technology maintenance and development costs undermining our ability to expand
our multi-asset class footprint?
Conclusion
Streamlining post-trade processing is attainable.
The structural shifts occurring across global markets present both challenges and opportunities
to brokers and banks in supporting their evolving needs and those of investment managers. The
opportunities are almost limitless for those firms able to efficiently support client demands for
access to broader and more complex product segments.
Creating an enterprise-level, multi-asset class operations infrastructure capable of managing the
complexity of the constantly shifting market structure is a monumental undertaking. Only a small
number of the largest global firms have the funding, staffing, and technical capabilities to create
an in-house solution that is fit for purpose, or to implement and maintain an off-the-shelf one.
With mounting cost pressures and increasing regulatory requirements, firms engaging in
multi-asset class trading should assess their core competencies and systems in key areas, such as
risk, technology and operations, expertise and cost. Once this assessment is complete, securing
the right partner is critical for streamlining post-trade operations across asset classes.
Seek a partner with proven business domain expertise and an unparalleled understanding of
building infrastructures to solve post-trade complexities across business lines.
This is where Broadridge comes in.

About Broadridge
Broadridge Financial Solutions, Inc. (NYSE:BR) is the leading provider of investor
communications and technology-driven solutions for broker-dealers, banks, mutual funds and
corporate issuers globally. Broadridge’s investor communications, securities processing and
operations outsourcing solutions help clients reduce their capital investments in operations
infrastructure, allowing them to increase their focus on core business activities. With 50 years of
experience, Broadridge’s infrastructure underpins proxy voting services for over 90% of public
companies and mutual funds in North America and processes more than $4.5 trillion in fixed
income and equity trades per day. Broadridge employs approximately 6,200 full-time associates
in 13 countries. For more information about Broadridge, please visit broadridge.com.
Use of Information Contained Herein
The information contained in this document is being provided to you for your convenience and information only and
should not be interpreted as legal, financial or other form of advice, and no legal or business decision should be based on
its content. This information is accurate as of the date of its initial presentation, and if you plan to use this information
for any purpose, verification of its continued accuracy is your responsibility.
broadridge.com/multiasset
© 2013 Broadridge Financial Solutions, Inc. Broadridge and the Broadridge logo are registered trademarks of Broadridge Financial
Solutions, Inc.
Author:
David Campbell, Senior Strategy Product Manager
Broadridge International Securities Processing Solutions
davidw.campbell@broadridge.com
Contributors:
Akhter Khan, Head of Asia Pacific
akhter.khan@broadridge.com
Jay Pila, Senior Vice President General Manager, Americas
jay.pila@broadridge.com

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