‘Progress is impossible without change, and those who cannot change their minds cannot change anything.’
George Bernard Shaw, Irish playwright
Almost any kind of progress will meet resistance of some kind, be it financial, social, cultural or psychological. In the area of investment management, the shift to automated processing (especially post-trade) has often been accompanied by an unexpectedly grim spectre: the blank screen. The cause of this alarm is the harmless practice known as ‘exception management’.
Our product, Salerio, is an exception management platform that operates in the area of trade matching and reconciliation. Staff in the back office of an asset management firm that are new to such a system do not always fully understand the implications of that term. Back office teams like to see busy screens with lots of data, but actually they should be just looking at the data where trades have gone awry. Exception management focuses on the problems.
WANT TO BUILD A FINANCIAL EMPIRE?
Subscribe to the Global Banking & Finance Review Newsletter for FREE Get Access to Exclusive Reports to Save Time & Money
By using this form you agree with the storage and handling of your data by this website. We Will Not Spam, Rent, or Sell Your Information.
Of course, it is rare that a computer dashboard is completely blank for long because most companies trade throughout the day. The moment a trade occurs it is represented on screen, and the operator is then waiting for a matching and reconciliation process to occur. The trade will remain on screen until the broker has completed the transaction. Hypothetically, once an operator has cleared all of the trades then the screen could be bare; the concept behind exception management is that there are moments in time when there is nothing to do. That is an absolute sign that the firm is in complete control of its trade operations process. Isn’t this what firms should be striving for? Yet firms have to get over a psychological barrier to reach this state of nirvana.
I remember when we had to change our software in the early days because of this fear. Say a firm does 1000 trades in a day, at a rate of 100 per hour over 10 hours. Even though the system had absorbed all of the trading data, the dashboard wouldn’t reflect this immediately. It was only after two hours had elapsed that a trade would be revealed on screen in the colour green (after which it would go blue and finally red). When the trade went blue, this was the point when the operator needed to investigate. We had to introduce a white status before green, because firms might do 100 trades in an hour and the back office team would panic that there was nothing on screen.
This is a real-life example of how people sometimes struggle to get their heads around exception management. In the first month of having an exception management system some trades will fail (usually due to a problem with data). Once that data issue has been rectified, that outcome will not occur again. In month one, for example, if the firm makes 1000 trades the operator might see 200 on screen. By month two, the operator might see only 100 on screen. By month three, that number may have fallen to only 50 and by month six there may be as few as seven ‘problem’ trades on screen. Yet it worries people enormously that 993 trades have occurred without any kind of human intervention.
In a sense, there is a parallel here with the ‘empty desk syndrome’. Back in the typical 1980s office when the paperless office was still a dream, if your desk was really orderly with very little documentation visible, a jocular member of staff might wander over and mutter: ‘Oh, you’re having an easy day aren’t you!’ As a consequence, naturally tidy people would clutter their desks with immense piles of paperwork that just sat there, gathering dust. It did, however, create an illusion that the individual was very busy. Here lie the foundations of the issue when people look at a blank screen – it is part of human nature that we fear for our jobs, particularly when technology is involved.
The practice of exception management is good for any buy-side firm, but there is a psychological barrier to be overcome. An efficient exceptions system can mean that there is as little as five per cent of the work to deal with compared to a manual process. The best way to view this situation is that in the quieter periods, those operators can be working on more fulfilling, value-added tasks, with time to focus on the places that matter to the firm – such as the biggest trades. In this way the buy-side firm can reduce operational risk because it is allowing staff the time to maximise their intelligence.
I believe that the fear of the blank screen is gradually reducing, as back offices become more familiar with transparent technologies. In our personal lives also, we take so many more things for granted even though they are invisible. Every credit card transaction does not strike terror in us because we cannot see how much has been debited from our account.
And in the age of AI, let’s not ignore the value of the human brain to perform the most worthwhile tasks.
Contributed by David Veal of corfinancial