Mar 13, 2015

In a world where money never sleeps and banks continue to seek cost savings by offshoring their operations – where is the best place to base your OTC confirmations team? Many banks have chosen to keep their structured confirmations teams in London and New York to leverage the skillset within these markets, but since the self-regulatory targets and more recently regulatory targets of T+1 confirmation execution high volume confirmation processing teams have moved offshore.

The reason:  offshore resources are and have remained cheaper than resources in New York and London, and there is a strategic time zone advantage. While London sleeps, a drafter in Sydney or India can be busily drafting before London wakes up on T+1.

So what is the issue? What is the time zone conundrum? 

Well in an ideal world – where tulips always bloom, having your confirmations team in Sydney is the perfect solution. Imagine it…. a trade booked in London on trade date can be drafted that same night by a drafter based in Sydney. The following day, due to the 11 hour time difference between London and Sydney, the confirmation will be ready and waiting once London wake up on Trade Date +1.

Unfortunately there is a downside to this, and this is where the time zone conundrum kicks in. What happens if there is an error in the confirmation? Sadly this is where time starts to turn on you, time is no longer your friend but your enemy. If London needs to respond to the confirmations team, Sydney is not in the office to respond – they are now sleeping. No problem I hear you say, what’s in a day? Okay, but what happens if London’s email requires another response or Sydney doesn’t immediately understand London’s response? What it means is that T+1 can quickly become T+2, T+3, T+4, T+5.

Having your confirmations team work whilst you sleep, leaving confirmations under your pillow (well not quite but you get the point) can quickly cause a backlog of confirmations, as changes ping-pong across the globe.

Also consider this; are your counterparties set up to deal with your confirmations team operating through the night? If your outgoing team are sending paper confirmations during the night, how are counterparties receiving them? Are they received by fax? Are these fax machines even on? Are they loaded with paper? If they’re not on, or they are not fully loaded with paper, will your counterparties even receive the confirmations that you are sending them?

So if Sydney is not the time zone wonderland, where is more practical?

In terms of offshoring the confirmations process, many banks have considered India as more convenient for their high volume vanilla rates, equities and credit derivatives products.

Mumbai has a time difference of five and a half hours to London, which means that it has a clear window whereby it can communicate with London. This means that whilst India can pick up the confirmations five and a half hours before London does, it also prevents instances of the Sydney drift (where confirmations ping pong across time zones, thereby drifting from T+2, T+3 and beyond). In India, most confirmation issues can be resolved by talking to London the same day.

Additionally, India frequently operates a dual-shift. This means that India often covers the working hours for both London and New York by having two teams coming into the office at different times.

So is the time zone conundrum resolved?

Simply put, no. The above suggests that India is the solution, but there are still challenges of not having processing in the same time zone, location and close proximity to the trading businesses. And more than ever before, as banks and financial institutions move into an increasingly electronic and digital era, time is money. However, while money never sleeps, humans (and occasionally fax machines) do.