Dodd-Frank Pushes the Middle Office Forward

by  Rob Hegerty,  Advanced Trading

The middle and back offices inside Wall Street firms are enjoying new status and increased budgets as new regulations put a renewed focus on risk management and compliance.

Until the financial crisis hit in 2008, banks were highly focused on the front office where they invested large portions of their discretionary dollars into the latest new ways to source liquidity. Firms pumped large sums of money into their proprietary trading desks, algorithmic trading engines and low latency infrastructures, while the less sexy middle and back office divisions were left to manage with limited resources and older, less sophisticated systems.

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We expect to see a surge in regulatory technology spending, with an emphasis on reporting, as legislation passed in 2010 — the Dodd-Frank Wall Street Reform and Consumer Protection Act in the US and the European Market Infrastructure Regulation (EMIR) in Europe — is turned from laws into rules in 2011 and 2012.

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The industry is currently seeing a lot of innovation in terms of governance, risk and compliance technology. Complex event processing (CEP) technology in particular, which was originally used to stream real-time market data and power algorithmic trading, has been adapted to build real-time surveillance and filtering tools. Some of the quants and mathematical geniuses that once built trading algorithms are now working on trade surveillance systems, in particular to monitor high-frequency trading, where the market moves so fast it is impossible for a human auditor to keep track. CEP vendors have made market surveillance a big part of their sales pitch.    Article