eFinancialCareers

The unsung heroes of investment banking.

Go to any campus banking presentation and very quickly you'll come across the words 'back office' and 'front office'. When people talk about the back office, they're talking about operations. Unlike the traders, sales people, capital markets and corporate financiers of the front office, people working in operations don't liaise with customers 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 business of operations covers everything from IT to human resources, accounting (finance) and risk management. Its functions are so broad that operations specialists typically specialise in only one of these areas.

At its centre is the core function of clearing and settling trades. Clearing trades involves looking at the records made by other banks' traders when they buy and sell shares or other financial products and checking that they match the records kept by people from whom or to whom the shares were bought or sold (the counterparties). People who work in settlements 'settle' trades – or ensure that stocks or shares bought and sold by the bank's traders are exchanged for the correct amount of money. '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 sold and bought.

Trends

The operations division may not make money for investment banks, but as a cost centre it certainly has the potential to erode their profitability. Banks are acutely aware of this and are doing their best to ensure their back offices run as efficiently as possible.

This isn't always good news for the people who work at the lower-skilled end of the operational continuum. Roles such as transaction processing are being shifted to low-cost countries such as India. Goldman Sachs is said by the Financial Times to employ 1,200 people in Bangalore, for example, while in April 2007 Citi announced plans to shift 9,500 roles to cheaper locations such as India and Poland.

At the same time, however, there's a need for more strategically-oriented staff who can help automate as many processes as possible. Where once trades were settled with reams of paper, they are now settled electronically through facilities such as Euroclear and Clearsteam, which hold securities electronically and transfer them from one owner to another.

In this context, one of the biggest challenges for operations divisions is finding a way of automating the settlement of complex derivatives trades, many of which are still settled manually.

Key players

It's harder to quantify 'key players' in operations than in other sectors – all banks have operations divisions and success isn't just down to the number of people who work in them and the number of trades they process. However, research company Z/Yen does its best to rank operations departments on the basis of client satisfaction and core processing abilities. On these measures, ABN AMRO and Morgan Stanley were the key players for equities and fixed income respectively in 2006.

Roles and career paths

Electronic systems have vastly increased the speed with which simple trades are processed. One example was the introduction of electronic trading on the London Stock Exchange in 1986, when it replaced floor trading as part of a series of measures known as the 'Big Bang' that made the City of London more competitive. But derivative trades are often too complex to be settled electronically and tasks are still done manually: trades are often confirmed by fax, for example.

The large number of documents required for derivatives transactions creates roles for documentation specialists.Whether you work with derivatives or not, most operations jobs also have a strategic element – banks use operations staff to analyse ways of making processes more efficient and project managers implement their suggestions; the more senior you become, the more likely is that you will be assigned to this kind of strategic or project management role.

Pay

If you work in operations, you won't get the gargantuan bonuses of the front office. On the other hand, you'll probably leave before 8pm most nights.

According to recruitment firm Morgan McKinley, the best-paid operations staff help settle the complex derivative trades mentioned above. It says the average salary for a senior trade support professional was £60k to £90k in 2007, plus a 40% to 80% bonus.

Skills

Operations employees need to be attentive to detail, have good organisational and time management skills and be creative. Hiring has been buoyant in operations during 2007 and there is strong demand for people with the right skills and attitude, particularly business analysts and project managers, says Martin Killeen, manager of Morgan McKinley's banking operations division: "We have seen a continued increase in demand for individuals to work within prime brokerage as more banks take on new business and break into this lucrative market," he adds.

Operations is a pivotal role, says Richard Moore, EMEA head of campus recruitment at UBS. "The trade is only done when operations has validated, cleared and executed it. There is a convergence of skills – you have to be able to solve problems but also be very client-orientated. It is all about the quality of the experience for the client in that execution," he says.

Operations people need to be able to demonstrate they have good interpersonal and communication skills, work coherently and effectively within a team, manage their time well and have good attention to detail.