With the Hong Kong and Asian markets becoming increasingly complex and competitive, more and more brokers are turning to back office outsourcing as a part of their future growth plans in the region. This is the key finding of BNP Paribas Securities Services’ recent market survey in Hong Kong which gathered feedback from over 150 brokers, focusing specifically on how local brokerage operations are evolving today.
In cooperation with SWIFT, the survey highlighted a number of key themes – such as regional expansion and risk management as vital factors in their current thinking. With an increasing number of brokerages in Hong Kong, firms are under continued pressure to evaluate new options as the key to finding a competitive edge. The advent of new choices such as Third Party Clearing and multilateral trading facilities offers brokers solutions to help manage this competitive pressure, albeit in a market where firms have historically managed the entire trading cycle in-house.
Market changes and Growth the key drivers for outsourcing
The fast changing nature of Asian brokerages is clear in the survey results, with many firms clearly linking their existing challenges to the benefits of back office outsourcing. Of these, market changes and expansion were cited as two of the key factors driving firms to look at outsourcing solutions (30% and 19% respectively), although such growth continues to be managed against a backdrop of continued risk reduction (26%) as firms continue to tread carefully in the post-Lehman world.
Outsourcing the key for low-volume brokers
The trend towards outsourcing is most evident amongst smaller brokers, 13% of whom have already outsourced their operations to third parties. Faced with limited IT resources and spend and in-house expertise, many such brokerages consider themselves too small to ‘go it alone’. From a management perspective, the benefits of outsourcing is increasingly outweighing the drawbacks given continued pressure to move fixed costs to variable and to focus on time-to-market as firms expand throughout the region.
The importance of local considerations
The survey also reflected several factors unique to Hong Kong, most notably the retail heritage of the market. In highlighting brand recognition as a key reason against outsourcing, many local brokers continue to cite the value of having their name on the trade ticket as an essential part of their value proposition: even in the institutional space. This view is supported by the prominence of the ‘bricks and mortar’ approach: where Asian brokers consider local, in-house operations to be a core part of their business in each market.
The Need for More Choice
Although there is clearly an increasing acceptance of outsourcing amongst those surveyed, respondents were clear in their explanation of what remains to be delivered in this space. Although limitations (such as local stamp duty reporting) are accepted as being beyond the scope of most outsourcing providers, 29% of brokers asked to see more outsourcing agents who can fully manage the settlement process (including all dealings with custodians) and 13% highlighting the need for agents to manage client and security data on their behalf.
Commenting on the survey findings, Barnaby Nelson, head of client development at BNP Paribas Securities Services Hong Kong said “We are delighted to see the trend towards back office outsourcing continuing in Hong Kong in response to a range of both local and regional considerations. Survey participants have been very clear in what they expect from their service providers we look forward to working with our partners and customers to help deliver truly local solutions that leverage our global leadership in the outsourcing space.”
About BNP Paribas Securities Services
BNP Paribas Securities Services is a wholly-owned subsidiary of the BNP Paribas Group, delivering flexibility and commitment, backed by the strength of a leading universal bank.
Operating across the investment cycle, we provide post-trade administration solutions to buy-side and sell-side financial institutions and issuers. The Bank has a local presence across 32 countries and global coverage of over 100 markets, offering a one-stop shop for all asset classes, both onshore and offshore, across the globe.
With USD 5453 billion assets under custody, USD 920 billion assets under administration and over 6,000 funds administered*, BNP Paribas Securities Services is Europe’s leading securities services provider and number 5 worldwide.
* as at 30 June 2010
About BNP Paribas
BNP Paribas (www.bnpparibas.com) is one of the six strongest banks in the world* and the largest bank in the eurozone by deposits. With a presence in more than 80 countries and more than 200,000 employees, including 160,000 in Europe, BNP Paribas is a leading European provider of financial services on a worldwide scale. It ranks highly in its three core activities: Retail Banking, Investment Solutions and Corporate & Investment Banking. In Retail Banking, the Group has four domestic markets: Belgium, France, Italy and Luxembourg. BNP Paribas is rolling out its integrated model across the Europe-Mediterranean zone and boasts a large network in the United States. BNP Paribas Personal Finance is the leader in consumer lending in Europe. In its Corporate & Investment Banking and Investment Solutions activities, BNP Paribas also enjoys top positions in Europe and solid and fast-growing businesses in Asia.
* Rated AA by Standard & Poor’s i.e. 3rd rating level on a scale of 22.