Case Study: Trading Services Model
The work described in this case study can be categorized as Product and Services Development and Project Related
The Client and Scope of Work
EG Consults worked with the Global Markets division of a Custody bank to outline the services offered to clients and the various roles taken by the bank in providing those services. Discussions with client facing teams, traders, risk managers, operational support teams and technology led to development of a Services Model.
Work product included clear descriptions and examples of each service, including an overview of legal contracts signed with clients and the risk profile incurred by the bank. EG Consults also provided a coding scheme to identify each service, which was incorporated into information flows for management and regulatory reporting.
The Value Proposition
The COO of the bank’s Global Markets Group needed to review the services offered by his lines of business (LOBs). Changing team leadership, coupled with on-going product development and new markets, blurred the scope and mandate of each LOB. Management reporting was complicated and inflexible. Impending regulatory requirements (MiFID) compounded the urgent need for streamlined reporting.
To straighten out the business mandate as well as supporting infrastructure, we needed a clear picture of who offered which products and services to which clients. This work included outlining what exactly was being delivered, ensuring that the associated risk profile was well understood, resolving overlaps and reaffirming the mandate of each LOB. Having come up with this characterization of services, we then needed to incorporate it into information flows for reporting.
Pulling It All Together
Formulating the Set of Service Descriptions
The success of this sensitive work was dependent on getting subject matter experts to agree that service descriptions were accurate and fair. EG Consults worked with client facing teams and risk managers to characterize their businesses. The first project phase focused on iterative discussion and review of work product. The challenge was to understand individual services, which were each complex, and how the set of services fit together.
Establishing Consistent Terminology Was Essential
As is often the case, terminology was a stumbling block. In many cases, the same words were used to define different things, or different words were used to define the same thing. Part of the power of EG Consults’ work product, is to ensure that everyone is on the same page with respect to terminology.
More on the Project and Work Product Excerpts
Service Model Development
Once we had a draft set of service definitions we could begin to think about the model and how many terms would be needed to specify the full set of services. We established broad categorizations such as Service Group, for example, Transaction Execution versus Operating Services. We developed guiding principals to differentiate one service offering versus another. Core differentiators were 1) what legal contracts (between the client and the bank) were required and 2) how did the risks incurred by the bank change. For example, Negotiated Sales is a service that the bank can offer in the role of Agent (bank is a middleman between two parties and takes limited risk) or Principal (bank takes the risk of the transaction).
Getting to Clarity by Example
Service descriptions often included diagrams to clearly show transaction variations. So for example, Negotiated Sales and Prime Brokerage were both services offered by OUR_BANK. There are 4 cases that vary by the service or services being transacted and the parties involved (OUR_BANK and, in some cases, another Bank).
Final Phase Was Development of Codes to Tag Transactions
Once we had a draft of a conceptual Services Model, we began to define the set of codes that would be used to tag transactions and that would be incorporated into regulatory and management information. The goal was to keep the set of codes required small so as to be manageable, but, we also needed enough codes to distinguish meaningful differences in level of risk. For example, cash products have a very different risk profile versus options and other derivative products. Negotiated Sales is a single service, but with two codes; one code for cash products and one for options and derivatives.
Service codes were incorporated into information flows by Technology and Operations teams. EG Consults worked with these teams to clarify the code definitions, to outline a process to support code maintenance and on requirements for infrastructure.