eFinancialCareers

The unsung heroes of investment banking.

Spend any time in the presence of investment bankers, and you’ll inevitably come across the words ‘back office’ and ‘front office’.

When people talk about the back office, they’re talking about operations. Unlike the traders, salespeople, 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.

Broadly, the business of operations covers everything from clearing and settling trades, to so-called ‘middle-office’ functions, such as IT, accounting (finance) and risk management. Its functions are so broad that operations specialists typically specialise in only one of these areas. We look at the middle-office jobs in investment banks’ IT, accounting and risk management in other profiles on this site, so here we’ll concentrate on the core of what goes on in the back office – 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. In most cases, trades are cleared automatically through huge electronic systems such as the Brussels-based Euroclear.

Settlements professionals 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.

Key players

It’s harder to quantify ‘key players’ in operations than in other sectors – all banks have operations divisions and success isn’t down to the number of people who work in them or to 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, polling some 200 buy-side (investment) firms. On this measure, UBS was the key player for both equities and fixed income in 2007, followed by Merrill Lynch and Liquidnet for equities and Morgan Stanley and Merrill Lynch for fixed income.

Roles and career paths

If you work in clearing and settlements, your job will probably be all about intervening when computer systems break down.

Most simple trades are now cleared automatically, but 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 find yourself talking 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 still isn’t 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 $455 trillion market for Over-The-Counter (OTC) derivatives still relies on a lot of manual processing, and this is creating problems – in December 2007, 13% of trades in credit default swaps were unconfirmed, according to The Economist.

Moves are being made to automate the clearing and settlements process in the OTC derivatives market, but until this happens people are needed to fill in and fax through the documentation. As you work your way up the operations hierarchy you will work in more strategic roles, looking at issues such as how to streamline the exceptions process or which functions should be moved offshore.

Pay

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

Recruitment firm Robert Walters says a commodities settlements specialist with three years’ experience can expect to earn a salary of between £30k and £40k working in London. Bonuses in operations are typically in the region of 30-70% of salary.

In continental Europe, pay is considerably lower. An experienced back-office professional in Paris, for example, will earn €30k-€35k, according to Robert Walters.

Skills

When they’re filling operations roles, banks look for a convergence of skills: problem-solving, interpersonal and time management especially. And in a role where accuracy and consistency are absolutely key, attention to detail is a must.

“You need to be proactive, organised, curious, team orientated, ready to take the initiative and able to solve problems,” says Christine Bizot, global head of HR for the global information systems and operations division of Paris-based investment bank Calyon.

Good communications skills are also important. Would you be comfortable, for example, dealing with an impatient trader? Even though operations professionals are not client-facing, they need to be able to interact and get on with people from all the bank’s divisions and functions, says Sarah Crawford, head of graduate recruitment, EMEA, for Goldman Sachs. “They need to partner with those they work with on a day-to-day level, whether they are French, German or Spanish,” she stresses.

Click here to find out about global trends in the operations sector.