Once you delve into the world of investment banking, you will soon hear the terms ‘front office’, ‘middle office’ and ‘back office’.
When people talk about the front office, they’re talking about the ‘sexy’ areas of investment banking – M&A, capital markets or sales and trading. When people talk about the middle office, they are referring to functions such as IT, accounting (finance) and risk management. When they talk about the back office, they mean operations.
Unlike the people in the front office, people working in operations do not liaise with clients to generate revenues and profits for the bank.
Instead, the division is a support function – operations professionals support people in the front office to make sure everything works smoothly and the bank gets paid.
The main business of operations is clearing and settling trades. Clearing trades involves making sure that the records one bank has kept of the sale of a financial security match those of the bank or organisation it sold the security to. Regulators are demanding more and more detail in the way banks document and report their trading activity, so operations divisions have grown in importance over the past few years.
‘Settlements’ covers everything from preparing the documentation required for a sale, to making sure the bank has been paid for all the shares it has bought and sold. Settlements professionals ensure that stocks or shares bought and sold by the bank’s traders are exchanged for the correct amount of money.
More recently, banks have been looking to cut costs from their operations functions and have been moving jobs to cheaper locations. Goldman Sachs, for example, has a 'high value' office that runs out of Salt Lake City in the US, while in the UK, Scotland has been a big beneficiary of 'near shoring', with Morgan Stanley, JPMorgan and Citigroup all carrying out back office functions in Glasgow and Edinburgh. Deutsche Bank has a large presence in Birmingham, while Bank of America has favoured Chester as a locate for its operations employees.
Jobs and career paths in investment banking operations
As a junior working in clearing and settlements, your job will mainly involve intervening when computer systems fail.
Every now and then, automatic clearing systems break down in a so-called ‘exception’. Clearing specialists spend most of their time dealing with these exceptions, trying to work out what went wrong.
If you work as an exception manager on a settlement desk, you might talk to traders who claim to have sold shares for $3 each when the buyer says the price was only $2, for example.
However, there are some areas of the market where clearing is not automated and if you work in one of these, you will be expected to do a lot more than simply sort out failures in the electronic clearing and settlements process.
In particular, the huge $600 trillion over-the-counter (OTC) derivatives market still relies heavily on a lot of manual processing, which is creating problems. Moves are being made to automate and centralise the clearing and settlements process in the OTC derivatives market but until this happens, people are needed to fill in the documentation.
Closer to the trading floor is the role of the trade support officer, which can cover a range of different asset classes, from equities and bonds to commodities or derivatives. Here, you are in the firing line for any queries a trader might have – everything from reconciliation issues to any discrepancies between the various counterparties involved in the trades.
As you work your way up the operations hierarchy you will progress to more strategic roles, looking at issues such as how to streamline the exceptions process or which functions should be moved offshore.
Skills investment banks want from their operations professionals
While operations positions are very process-driven, which requires obsessive attention to detail, accuracy and consistency, it’s also an area that is surprisingly fast-paced, especially as banks are always grappling new regulations and looking for ways to make their back office more efficient.
“You may face new issues and regulations, and may be assigned fast-changing priorities. You will need to stick to the policies and principles but where necessary need to be flexible enough to make changes,” said Shoko Mizuhaya, director, group operations manager, derivatives at Bank of America Merrill Lynch.
While operations professionals have few client-facing responsibilities, they are essentially ensuring the smooth running of the organisation and therefore any problems they solve help enhance the ‘client experience’.
Good communications skills are therefore important, because people in operations deal with many other divisions and functions within the bank. Would you be comfortable, for example, dealing with the demands an impatient trader?
“It is equally necessary to have strong communication skills as the role requires reaching out to a number of stakeholders whose interests may not be the same as mine,” said Mizuhaya.
Even though operations professionals will not be managing money, they still need a keen sense of risk and reward, believes Kristi Tange, managing director, operations division at Goldman Sachs EMEA.
“Risk management is integral to everything we do - we look for individuals who are motivated to collaborate in the design of solutions for business processes, and display strong leadership and integrity,” she said.
How to get an entry level job in risk management and compliance
How to get an entry level job in equity capital markets
How to get an entry level job in debt capital markets