All the activities that take place behind the picture in the forefront can be termed as ‘back office’ work. The backend functions underlying the equity market, is no different. Let us understand the basics of the back office operations in the securities markets.
Back office work is just not limited to human resources or finance. It branches out to technology, settlements, compliance, record maintenance and every task that you can think of. It forms the foundation of a securities market and no matter how well a front or a middle office employee is working, if the back office work is not managed well, it all boils down to havoc and chaos. Hence, experience in back office domain is a valuable asset that one must possess, especially in the equity market.
All in all, back office work includes employees who are not client facing. They interact actively with the rest of the firm to ensure an easy and continuous flow of information. This area has been witnessing substantial changes due to the evolution of technology. It must, however, support the understanding of each person interacting with them.
There are various products available in the Securities Market namely, equity shares, debentures, warrant, mutual funds, IDR, derivatives, bonds etc. Nowadays, thanks to technological advances in the stock market, there is one specific mechanism that takes care of the back office work. This mechanism is popularly known as the Straight Through Processing System, which manages the end-to-end procedure of each transaction pertaining to all the financial tools. It basically has one system that processes all the elements of the financial transaction. Nevertheless, back office is where most of the dynamism comes in. Various external entities unite together to come up with automated processes to simplify the back end work.
In the equity market, back office work starts from working and coordinating various market tools to clearing and settlement. It includes recruiting fresh blood in the firm to setting disciplinary standards for both the employees and public. It aims to form a connection between risk management and instruments that affect the institutions reputation.
All in all, apart from its omnipresence in the various departments, back office work in a stock market firm includes functions like:
- Security and Derivative settlement
- New securities issuance
- Processing asset servicing
- Clearing and settling trades in the stock market
Clearing trades is concerned with checking the ledger made by the traders when shares and other instruments are bought or sold and matching them with the ledger maintained by people from or to whom the shares were sold or bought. Settlement is concerned with exchanging the correct amount of money for the correct amount of shares. Hence, it is very important to understand that, while back office might not be the revenue source for the organization, mismanagement of it can lead to serious losses. The firms working in the securities market must aim to make their back office extremely efficient as that will definitely have a positive ripple effect on the profits. It is, therefore, safe to call the ‘back office’ segment of the stock market, the crux of its foundation!