The mandate to rethink financial services operations, from end-to-end, has never been stronger. Based on interviews with global C-level Financial Services executives, this paper discusses external market drivers triggering changes in operating models and explores the capabilities leading firms can harness to make their operations more client-focused, agile, scalable and collaborative.

1. IBM Center for Applied Insights
Beating market mandates:
How winners are re-engineering financial markets operations
In collaboration with Broadridge Financial Solutions

2. About the study
To understand how operations within financial markets firms
are changing, IBM in collaboration with Broadridge Financial
Solutions surveyed 133 operations strategy decision makers.1
More than 80 percent of the respondents are senior business
executives (38 percent–C-level, 44 percent–Senior Vice-
Presidents, Vice Presidents and Directors); 2 percent are
Business Department Managers; and the remaining 16 percent
are IT decision makers.
Survey participants hold positions in companies of various
sizes, both global and regionally focused. Thirty-seven percent
work in universal banks, 29 percent in broker-dealers and
35 percent in other types of non-bank asset management
firms. Spanning a sample of trading locations around the
world, 47 percent are from the United States, 27 percent from
the United Kingdom and 26 percent from either Singapore or
Hong Kong.
About Broadridge
Broadridge Financial Solutions is a leading provider of
technology-driven solutions and investor communications
to banks, broker-dealers, mutual funds and corporations
globally. For more information about Broadridge, please
visit www.broadridge.com.
Financial markets firms are facing a
much higher bar as clients become more
technically savvy and accustomed to
anytime, anywhere access. Clients expect
customized products and services, faster
execution, transaction status visibility
and unfettered access to information
so they can develop their own insights.
Unfortunately, many firms can’t respond.
They’re stymied by rigid processes and
systems, overwhelmed by regulatory
change and have largely tapped out
cost-reduction strategies, such as labor
arbitrage and optimized processes.
Yet, forward-thinking firms are able to
excel amid today’s new realities. How?
These Leaders are building a different
kind of operating model–one designed to
embrace rapid, continuous change. And
as they look for better ways to do things,
all options are on the table, including
partnering in a variety of forms.

3. IBM Center for Applied Insights 3
What Leaders do
• Think marketplace first, “factory” efficiencies second
• Design operations around client interactions, not
vice versa
• Cultivate agility–and an ability to see what others don’t
• Build and use scale, but not always in expected ways
• Partner to extend their capabilities–and their thinking
Through the wringer of change
With decades of relatively comfortable growth fading from
memory, financial markets firms face softening revenues.
The battle to retain customers and grow share is intense.
Industry analysts estimate that 15-20 percent of wholesale
and investment banking market share will be reshuffled in
the next few years.2
Clients are demanding information in real time, unbiased
advice, better reporting as well as customized products and
services. Also, as clients have grown more technically savvy,
they want access to information when, where and how they
want it. Their rising expectations are shaped not just by
innovative financial markets competitors but also by
experiences in entirely different industries.
Locked into legacy systems and processes, many firms are
struggling to respond. One executive described his firm’s
shortcomings rather bluntly, “We’re a batch processor.
Clients are expecting real time.”
“The better/more efficient our operations are,
the more customized products can be offered;
this will allow us to differentiate.”
– COO, Investment Manager, United States
While they’re grappling with client demands, firms are facing a
steep surge in regulation–Dodd-Frank, Basel III, Large Trader
Reporting, Foreign Account Tax Compliance Act, Cost Basis
Reporting and European Market Infrastructure Regulation
(EMIR), just to name a few. Many legislative details are still
unfolding, creating substantial uncertainty and angst. As one
executive put it, “The securities industry is now undergoing a
total revamp. Between Dodd-Frank and the Volcker Rule,
there’s more work than anybody can do in the next 20 years.”
But it’s not just the expense of altering processes and systems.
New rules are also limiting revenue and reducing the
profitability of certain businesses. This is forcing some firms
to radically change approaches–or withdraw entirely from
these businesses.
The one-two punch of overwhelming regulatory change and
rapidly rising customer expectations is putting tremendous
pressure on the operating models of financial markets firms
(see Figure 1). Making matters worse, these two drivers often
compete for the same resources. Between the cost to run the
business and the expense of complying with mandates, firms
have little left to invest in change-the-business initiatives that
could create competitive advantage.

4. 4 How financial markets leaders tune their operations for competitive advantage
Even though regulation and customer demands are the
dominant drivers of operational change, they’re certainly
not the only concerns. Firms are also wrestling with a host
of industry efficiency initiatives, sluggish mature-market
economies, ongoing globalization and the constant pressure
to manage risk in a low-margin environment.
So, how can firms–in the midst of so much change–keep
clients happy and win a bigger share of a very volatile revenue
pool? Moreover, what role does operations play in this
strategic dilemma?
“A lot of resources are tied up in dealing with
regulatory changes.Other areas–new
products,building scalability or efficiency,
building new functionality or services–
have to take a backseat.”
– COO, Universal Bank, Singapore
Lessons from the Leaders:
Efficient is not good enough
To learn how effectively firms’ operations are addressing these
simultaneous demands, we looked at our survey respondents in
terms of two dimensions: regulatory support and innovation
speed. This led us to identify three groups:
• Leaders–These firms excel at meeting both regulatory and
marketplace requirements, typically introducing new products
and services in three months or less. Just over 20 percent of
the surveyed firms fall in this group.
• Followers–Totaling just over half of the sample, these firms
tend to major on mastering one priority or the other,
compliance or innovation.
• Laggards–Nearly one-quarter of the surveyed firms lag their
peers in both regards. They grapple with adapting their
operations to new regulations, and it takes longer for them
to support new products and services.
We then compared these groups to see how they’re responding
to the threats facing their industry. We examined their business
priorities, their actions in evolving their operating models and
the resulting business outcomes.
External market drivers triggering changes
in operating models
Regulatory requirements 77%
Demanding customers 59%
Slow market growth in mature economies 39%
Expansion to global emerging markets 35%
Industry consolidation 35%
Low interest rates 30%
Expansion to global mature markets 29%
Figure 1. Regulatory requirements and customer demands are forcing
significant changes in firms’ operating models.

5. IBM Center for Applied Insights 5
The clearest distinction between Leaders and Laggards is
reflected in their business priorities (see Figure 2). Leaders are
focused on competitive differentiation and addressing new
market needs. Laggards still think in terms of tuning the back
office, focusing on high efficiency at low cost.
For Leaders, the “operating model” extends well beyond the
back office. And improving operations doesn’t just happen
inside the processing “factory.” It’s about redesigning the
operating model with a more holistic view–across front,
middle and back offices and into the clients’ operations.
“We must make sure changes enhance the
whole process.It’s no good having a Rolls-
Royce in the front and a Mini in the back.”
– COO, Universal Bank, United Kingdom
External factors Internal factors
2012 business priorities to address critical market challenges
Respond to
regulatory changes
Differentiate from
competitors
Improve agility in
the market place
Expand
geographically
Improve flexibility of
internal operations
Reduce post-
trade operating
costs
63%
67%
54% 54%
42%
25%
38%
20%
25%
32%
20% 21%
29%
43%
50%
17%
22%
38%
Leaders Followers Laggards
Everyone has to
respond to regulation
To excel in today’s rapidly evolving business landscape, Leaders
are adopting a different type of operating model–one that
is more client-focused, agile, scalable and collaborative
(see Figure 3).
Client-focused
Among Leaders, differentiated customer service is a key design
principle for their operations. Often, this puts a premium on
technology–not just back-office systems, but front-office
and client-facing solutions as well. As one executive shared,
“Innovative back offices are on the cutting edge, with all the
different IT upgrades like front-end compliance and iPad
apps.” And clients expect the same high-quality experience
regardless of channel or line of business. For firms, this
requires tight integration across silos.
Not surprisingly, given their intense focus on clients, Leaders
report significantly higher levels of customer satisfaction with
their operating models–with the consequent benefits of
differentiation and improved revenue prospects.
Figure 2. Leaders are more attuned to external, market-oriented priorities, while Laggards focus on internal challenges like reducing costs.

6. 6 How financial markets leaders tune their operations for competitive advantage
“From an operational perspective,we’re
bringing platforms together and building
a system that can move as quickly as our
clients want to move.”
– Operations Vice-President, Broker-Dealer, United Kingdom
Innovation speed is another key customer expectation. “The
faster and more innovatively operations can support a new
product–valuing it and getting it into client statements–the
quicker we get to market,” one executive advised. Leaders
know how to quickly source expertise that enables this speed
to the market; compared to peers, they’re more inclined to
obtain capabilities externally.
This unrelenting pressure to innovate is prompting firms to
constantly scan the market for new thinking–and even look
outside the industry or tap external partners. Outsiders can
often see opportunities insiders miss because of long-held
industry conventions, assumptions and norms.
Agile
Compared to Laggards, Leaders are far more focused on
stripping complexity out of their operations, creating
“agility by design.” This is one reason they can address
significant regulatory change–like EMIR and Dodd-Frank–
more nimbly and launch new products and services faster
than their peers.
Leaders’ more agile operating models are likely to prove
even more advantageous as the industry works to shrink the
settlement window. The industry’s move toward “trade date
plus one (T+1)” emphasizes the need to further simplify and
reduce risk in clearing and settlement processes.
Profile characteristics – maturity in delivering outcomes from operating models
Achieve high customer satisfaction
Differentiate customer experience
Improve access to analytics
Reduce complexity
Provide scalability
Innovate through globalization
Outsource extensively
Share operational risk
Laggards Followers Leaders
16%
63%
21%
29%
21%
33%
13%
21%
45%
73%
37%
43%
20%
57%
30%
31%
46%
92%
51%
67%
54%
67%
33%
46%
Client-focused
Agile
Scalable
Collaborative
Traits Outcomes
1.5x
2.9x
2.3x
2.4x
2.0x
2.6x
2.2x
2.5x
Leaders to Laggards
Figure 3. When compared to their peers, Leaders’ operating models are more client-focused, agile, scalable and collaborative.

7. IBM Center for Applied Insights 7
“Outsourcing has helped us to scale our
operating environment,to expand the
business as much as we’re able to sell.”
– CFO, Universal Bank, United States
However, how firms build scale varies. Large firms may decide
to develop capabilities internally, but other firms often use
sourcing options to quickly gain similar scale advantages.
Another way Leaders are using scale to their advantage is
through globalization. Spreading operations capabilities
across various geographies can improve availability and
responsiveness to clients–and help accelerate processing.
For example, according to one executive, “If I can get my
reconciliation done by people in India in their morning, so
that when the people in U.S. operations arrive, they have all
the reconciliation performed, that’s definitely an advantage.”
Alternatively, global operations also provide Leaders with
opportunities to centralize processes in specific regions. In
addition to cost savings, the act of consolidating processes
offers a chance to improve them. As one executive explained,
“When you bring together global operations in one area, you
give employees an opportunity to look at it end to end. That
creates the platform to then ask, could we innovate it?”
Whether they centralize or not, firms are finding they must
design globally and act locally. Having similar functions
that operate differently in every part of the world is no
longer affordable.
Another key contributor to leaders’ agility is better insights.
More than two-thirds of Leaders indicate their operating
models provide improved access to analytics, more than
double the percentage of Laggards who report such benefits.
For financial markets firms, sophisticated analytics and the
ability to gain insights and make decisions more quickly
is especially critical in the area of risk. Operating model
improvements need to address more than just operational risk
and compliance–they also need to support risk requirements
on the trading side. As one executive described, “The Asian
market looks for innovative products with very high risk and
very high volatility. If you have to offer these products quickly
and effectively, and manage them internally from a risk point
of view, your risk management infrastructure becomes
extremely important.”
Interestingly, across the entire sample, operations
executives ranked risk management infrastructure as their
most differentiating securities processing attribute, even above
trading and order management. With the end of the global
financial crisis not even in sight, it’s not surprising that nearly
half admitted their risk management infrastructure is only
moderately effective at best. Even Leaders are challenged
in this area.
Scalable
The investment cycle and prioritization within firms has
frequently led to investment in front-office requirements at
the expense of funding longer-term transformational change
in the back office. Consequently, firms often face significant
scalability constraints imposed by legacy systems and processes.
This is particularly problematic in today’s business environ-
ment where fixed costs continue to rise and scale is key to
lowering costs per transaction.
In fact, some industry analysts have asserted that operational
scale is becoming more important than financial leverage
and trading expertise.3
Our study findings certainly corroborate
this view. Among our respondents, Leaders are more than
twice as likely as Laggards to be adapting their operating
models to provide greater scalability.

8. 8 How financial markets leaders tune their operations for competitive advantage
Level of outsourcing by platform
Settlement and clearance
Back-office accounting and valuation
Reporting and statements
Trading and order management
Risk management infrastructure
Laggards Followers Leaders
17%
29%
30%
15%
21%
27%
38%
35%
30%
17%
55%
60%
35%
53%
23%
Process area
2.0x
3.2x
3.5x
1.2x
1.1x
Leaders to Laggards
Collaborative
Compared to their peers, Leaders are far more inclined to
build collaborative operating models that leverage partners’
expertise, technology, scale and continuing investments. They
recognize that an internal solution is not the only way to
create greater agility and best-of-breed operational capabilities.
These collaborative sourcing approaches can take many
forms–from traditional outsourcing to cloud solutions to
mutualized processes shared across the entire industry.
The rationale is not just about cutting costs–it’s about
increasing competitiveness. External sourcing can free up
capital and management attention from areas where firms lack
competitive advantage, allowing firms to refocus resources
on differentiating areas.
Sourcing can also provide direct benefits in terms of market
competitiveness. As one executive said, “By finding the right
partner, we can gain speed to market and best-in-class offerings
for our customers.” Other respondents described how service
providers helped them stay in sync with rapidly changing
market demands. As the pace of both customer demands and
regulatory changes continues to accelerate, firms’ current
capabilities may not be sustainable at the same level over time,
making partnering an increasingly attractive alternative.
“If we outsource,we get expert advice,and
it’s faster for us to launch a new product
or process.”
– Head of IT, Universal Bank, Singapore
Leaders also report significant benefits from sharing
operational risk with service providers. Given their scale,
degree of specialization and broad base of client experience,
providers may be better positioned to manage operational risk.
And the extra scrutiny by a third party provides additional
safeguards. However, firms were quick to point out they’re
not “transferring” risk. They are still ultimately accountable–
and must maintain controls and governance processes for
managing their providers. And as the propensity to partner
rises, firms may also need to develop skills to integrate and
manage third-party providers effectively.
Across segments, we saw clear differences in where firms
are most likely to engage partners. Compared to Laggards,
Leaders are substantially further along in outsourcing
settlements and clearance, back-office accounting and
valuation, and reporting and statements (see Figure 4).
Figure 4. Leaders are more than twice as active as Laggards in outsourcing highly standardized back-office processes.

9. IBM Center for Applied Insights 9
Who will inspire and lead operating
model change?
In terms of instigating and influencing operating model
change, COOs ranked as the chief drivers (84 percent),
on par with CEOs (83 percent). Respondents also told
us, given the nature and magnitude of change underway
in their operations, the COO’s role and responsibilities
are shifting. As one executive shared, “The role has
changed in the last couple of years from focusing on the
day-to-day stuff to high-level business strategy. It’s about
taking a step back and looking at the way we do things
from a larger perspective.” Among those surveyed:
• More than 60 percent indicate their COOs are driving
strategic business change.
• Nearly 60 percent said their COOs are driving
organizational agility and delivering benefits beyond
cost savings.
• More than half said their COOs are driving product and
service innovation.
Firms clearly recognize that the operational changes
required to drive greater competitiveness transcend the
usual span of control and mindset of IT and operations
managers. It’s no longer sufficient to simply lower operat-
ing expenses within individual lines of business–a more
holistic approach is required, which means the COO will
be shouldering more of these transformational decisions.
It also means COOs will shift from managing primarily
internal resources to managing a broad ecosystem of
partners and providers–and take on broader risk
management responsibilities.
Arguably, these processes are easier to outsource. As one
executive suggested, “Clearing and settlement is the best
place to start, because everybody does the same thing.”
Conversely, firms tend to keep in house those functions–like
risk management and trading and order management–that
are closer to the front office. According to another executive,
“There are certain functions that are unlikely to be given
to anybody else, like trading and execution, aspects of port-
folio management and major parts of a firm’s risk manage-
ment capabilities.”
Although Leaders may have started with routine processes,
they’re often sourcing for market-driven reasons–to gain
speed, scale and access to industry-leading practices and
ongoing innovation, with lower levels of investment. Success
in these areas will likely encourage leaders to forge ahead into
sourcing more complex functions such as reconciliations,
data management, tax reporting and corporate actions.
An urgent mandate for
operational change
What if industry analysts are right and 20 percent of clients are
shopping for a new provider? Will you be on the gaining or
losing end?
It’s possible to be responsive to a rapidly changing marketplace–
if you have the right kind of operating model. Regardless of
how far a firm has progressed, the distinguishing traits of
Leaders’ operating models provide an effective framework
for assessing where further improvements are crucial.

10. 10 How financial markets leaders tune their operations for competitive advantage
Client-focused: Design for differentiation
In the financial markets industry, the threat of
commoditization is real. Efficiency can only take a firm so
far–ultimately, firms must find ways to differentiate and
grow share.
• How does your client service compare with your peers?
What sets your firm apart?
• Would clients say their service relationship with your
firm revolves around them or around your organiza-
tional structure?
• Is your client service continually improving by design?
Agile: Move at market speed
That means getting faster and smarter. Given the degree of
industry, regulatory and client-driven change underway, firms
need to address operational roadblocks. At the same time,
they need to better leverage data and analytics to uncover
opportunities for differentiation.
• How quickly can your operational support move from an
initial product concept to launch?
• How rapidly–and cost effectively–can you respond to new
regulatory requirements and client requests?
• Where could additional insights help improve operational
processes and decision making?
Scalable: Go for flow
Facing volatile–if not flat–revenues, and rising fixed costs,
many firms have no choice but to compensate with greater
flow. But this strategy is only viable for those that can easily
scale their operations.
• Even in areas where performance is currently satisfactory, are
your current capabilities sustainable over time?
• When volumes decline, are you left with high stranded costs?
• Which processes are most conducive to centralization? Are
you actively looking for opportunities to innovate through
globalization?
Collaborative: Say good-bye to “not invented here”
The securities industry is quickly approaching the point where
it can no longer afford fixed costs, duplicated firm after firm,
on processes that offer no real competitive advantage. Keeping
everything in-house–in attempts to preserve the greatest
degree of flexibility–is becoming unsustainable. The Legal
Entity Identification (LEI) standard, Trade Data Warehouses
and TARGET2-Securities (T2S) are demonstrating how
mandate-driven change is being realized through multi-client
collaboration.
• Should you be championing industry-wide shared services
that reduce routine operational costs for all participants?
• How should such collaboration be realized? Would you look
to trusted partners, regulators or market infrastructure
providers to provide the necessary solutions?
• What criteria are you using when making sourcing decisions?
Are you focused primarily on cost reduction or increased
market competitiveness?
“If you get stuck in old-fashioned ways,it’s dry
up,don’t make money,and then go out of
business.The only way we keep up is by
reinventing ourselves.”
– COO, Universal Bank, United Kingdom
As firms struggle to grow their top lines, they’re grappling with
client demands for speed, innovation and interaction on their
terms. The constant stream of industry-mandated efficiency
endeavors is forcing firms to rapidly adapt their operations.
Complicating matters further, the industry is embroiled in
what’s been called the most significant period of regulatory
change in four decades.

11. IBM Center for Applied Insights 11
Though arguably more intense at the moment, these are
perennial challenges. There will always be new client demands,
regulatory change and efforts to improve efficiency. The
difference is Leaders are inherently equipped to adapt and
thrive in these volatile environments.
To move up the evolutionary ladder, firms will need to
re-evaluate their operating models, deconstructing what
they do, to understand where they can create client value,
differentiation and agility. For non-differentiating functions,
they’ll want to build leverage by considering alternative ways
to source those capabilities–through external providers,
mutualized processing or other collaborative models. And
they’ll need to build a roadmap to achieve identified changes,
determine the associated costs and expected benefits, and put
in place the leadership, governance and partnerships necessary
to accomplish it.
For most firms, the mandate to rethink their operations,
from end to end, has never been stronger. Fortunately, firms
also have more transformational levers at their disposal than
in the past–with new technologies and a growing range of
partnering options. The pivot point that will continue to
separate winners from losers is who can best harness these
capabilities and make their operations more client-focused,
agile, scalable and collaborative.
The IBM Center for Applied Insights (ibm.com/smarter/cai/
value) introduces new ways of thinking, working and leading.
Through evidence-based research, the Center arms leaders
with pragmatic guidance and the case for change.
About the
IBM Center for
Applied Insights
About the authors
Keith Bear, Director, Financial Markets, IBM
keith_bear@uk.ibm.com
Tom Carey, President,
Securities Processing International, Broadridge
tom.carey@broadridge.com
J. Michael Hopkins, President,
Fixed Income and Risk Management, Broadridge
jmichael.hopkins@broadridge.com
Ron Lefferts,
Partner and Industry Leader,
Financial Markets Global Business Services, IBM
rleffer@us.ibm.com
Charlie Marchesani, President,
Securities Processing U.S., Broadridge
charlie.marchesani@broadridge.com
John Reiners, Principal Consultant,
IBM Center for Applied Insights
john.reiners@uk.ibm.com
Contributors
IBM
Emily Baugher, Jim Brill, Angie Casey, Subrata Chatterjee,
Stephen B. Rogers, Vijay Saxena, Jane Seaton, Robert Stanich
Broadridge
Michael Alexander, Michael Dignam, Anthony Iannuzzi,
Pete Vill

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Notes and references
1
This survey was conducted in double-blind fashion: the identities of the
survey sponsors, IBM and Broadridge, were not revealed to the
respondents, and the identities of the respondents were not shared with
IBM and Broadridge. The quantitative research was also complemented
by in-depth interviews with 14 percent of the respondents.
2
“Wholesale & Investment Banking Outlook: Decision Time for
Wholesale Banks.” Morgan Stanley and Oliver Wyman. March 23, 2012.
3
Ibid.