NEW YORK (TheStreet) -- If you're a broker-dealer, technology has shaken up your business, but it can also help you compete better. You can use technology to strengthen your back-office processes.
Although the roots of electronic trading were planted in 1992 with the birth of the CME Group's electronic communication network Globex, many organizations were able to continue business as usual until the Securities and Exchange Commission authorized electronic exchanges in 1998. As recently as 1997, the Chicago Board of Trade (now owned by CME) was betting on traditional trading with an expansion that at the time made it the world's largest trading floor.
Since then, however, advances in electronic trading have allowed traders to almost instantaneously capitalize on price fluctuations, rendering traditional trading nearly obsolete.
Firms today must work faster and be smarter to match rising industry standards. By automating any part of their day-to-day operations, from regulatory compliance to customer relationship and execution-fee management, broker-dealers can protect their competitive edge.
Especially for older firms struggling to adapt to market fragmentation (and its residual costs), now is the time to address and renovate critical business practices. Here are a few back-office guidelines broker-dealers should follow to remain successful amid a changing industry landscape:
Make trade surveillance a preventive process: Broker-dealers must comply with regulatory standards or face fines, damage to their reputations and other penalties. With the right automated tools in place, firms' monitoring of daily trading activity can help catch the most egregious abuses before they occur, including spoofing, layering, wash sales and limit or market-on-close orders. Each of these behaviors carries significant risks for broker-dealers who fail to preemptively detect illegal trading activity. Spoofing and layering contribute to market distortions like the infamous 2010 Flash Crash, and some traders use wash sales to avoid taxes. Similarly, limit and market-on-close orders can inaccurately inflate a trader's portfolio. Rogue actors often "test the waters" before committing full-blown trading fraud; a comprehensive market surveillance strategy can help your firm identify malicious patterns before it's too late.