Clare Marlow (CM): Think about the experiences we saw through COVID-19, with offices being closed and teams working from home, or the recent number of cyber breaches, which resulted in the loss of client data and subsequent loss of confidence in these businesses. I think this has highlighted the responsibility that organizations and their leadership have in ensuring business resiliency plans are in place and that data is secure. For me, the financial and reputational damage stand out as key risks.

From a trading perspective specifically, any event that impacts an organization’s ability to implement timely investment decisions are front of mind in considering BCP solutions. Think about an investment manager not being able to execute their trading requirements, whether due to system failure or unexpected team absence. The net effect is the opportunity cost of not being able to implement that investment decision and the impact on performance – not to mention the financial implications of making good to clients.

A BCP event resulting in a missed deadline for a corporate action, such as a buyback or rights issue, are good examples. Not only does it create a difficult conversation with underlying clients to make good for any potential losses, but it exposes firms to reputational damage, and that can have a snowball effect, resulting in loss of clients, assets under management and ultimately business viability.

CM: I think increasingly, these are very real risks. The pace at which dissemination of information occurs in the market is only getting faster. You only need to look at the impact of news headlines or of analyst ratings on share prices. To be able to act on any number of changing market factors quickly and reliably is an essential part of most buy-side organizations’ investment process.

So yes, these are very realistic risks that investors or traders face and therefore will continue to be a focus for the industry. If business resiliency comes into question for an organization, it’s really hard to undo that perception. The pressure from regulators and clients to ensure their service providers have planned for BCP events inherently makes it harder for any organization to ignore these risks.

CM: I've been in the industry for more than 20 years and I'm increasingly hearing clients ask for perspectives about how they can implement business resiliency measures across their trading functions. People are curious as to what others are doing and if there are ways to improve on what they already have in place. Asset managers are sensitive to trading desk resiliency, as alpha generation is core to their success. This can make it feel that it’s difficult to find solutions for questions such as: How do you retain control of your trading process? How do you protect your investment intellectual property (IP)? These are normal concerns, but can be addressed easily through good communication, planning and partnering with an agency execution solutions provider that alleviates the conflicts that can exist with a provider that is also managing a prop trading desk. The client alignment that comes with an agency provider is often an important component for clients to feel comfortable moving forward with more detailed discussions.

In terms of what's driving this increased focus – there are a number of factors, but accountability at the board level and regulatory change stand out. Boards signing off on internal controls and adequacy of BCP are taking this responsibility more seriously than ever.

Managers are also seeing pressure from consultants representing clients and from their clients directly. Superannuation/pension plans are a good example. These funds have enormous responsibility and accountability to their members, so internalization of the investment function means they also need to look at business resiliency for their internal teams, in the same way they would their external managers. This means ensuring that any core function internally is prepared from a BCP perspective. Conversely, external managers simply won’t be appointed without reliable BCP planning in place.

CM: A true outsourced trading solution is more than just directing trades across a panel of brokers – it’s an extension of your team, which enables you to reduce the risk and the high fixed costs of running a trading desk. However, I think this decision comes down to the risk appetite of boards and/or management. If your business model involves maintaining an internal trading desk, then not having a solution for a breakdown in your trading functionality will open you up to the risks that we've just been discussing earlier.

Putting a solution in place with an external provider is really just like an insurance policy. It's going to deliver confidence that you will have access to the market, trading resources and agreed trade protocols so that you don't compromise your ability to implement your trading in the way your investment process requires.

CM: It’s absolutely critical, if you think about the operational layers involved in a true BCP solution – this takes time to plan, document, test and communicate. Each organization is unique in terms of systems, people, workflows etc., so for a BCP implementation to be seamless and allow your internal trading process to switch over to your BCP provider, you really need a partner who understands what and how you trade. This involves drilling into your workflows, the relevant data flows and the technology stack you have adopted. Your BCP provider needs to understand what problem you're trying to solve – Is it people? Is it systems? – as these can require different solutions. You can expect to solve multiple BCP situations, which can take time, planning and ongoing testing. Having all this in place ahead of any event is the only way you can have comfort in your trading resiliency – but that’s the purpose of a BCP solution.

CM: Yes, absolutely. We recognize that for some asset managers, the research component of what they do is a key part of trading and allocating for this service. This is something we spend time with clients to understand if it’s needed; however, for some organizations it’s just not relevant. Ultimately, if it is, we're able to accommodate directing to particular brokers. We trade across more than 150 counterparties and liquidity venues, and if we need to, we can also look to bring on new counterparties. This is pretty appealing to most asset managers, who typically navigate across much smaller liquidity pools.

Alternatively, we can run a Commission Sharing Agreement program, which is basically running a research account for the client to allocate at a later date at their own discretion, for research.

CM: I think people often underestimate this part of the process. But, as I mentioned before, every organization is different, be it the technology they’re using, the structure of their investment team, or the ways in which they operate.

So we spend, depending on the organization’s size and complexity, weeks or months workshopping – mapping out and understanding the framework in which they operate – and then understanding the pain points and what you're solving. This is really a trust exercise – you are being entrusted with a great responsibility for your clients. In reality, a BCP situation is stressful enough – you want to know the solutions you have in place are fit-for-purpose and don’t add additional stress to what is already a challenging situation.

I can’t stress enough that good planning and communication are really important parts of the process. Meeting various stakeholders, continuously clarifying your understanding and seeking feedback. We want to know clients are satisfied with the framework that is in place, and that it is fit-for-purpose.

CM: When you build a BCP plan, it’s not a static document. This means setting a suitable cadence for testing and review (this is typically driven by clients’ internal governance). So, you are deliberately looking at the agreed-upon plan and assessing any changes or enhancements that need to be applied on a regular basis. However, it’s also important to have trigger points for review – things like technology updates/changes; team responsibility or resourcing changes; even business location changes. Essentially, whenever something material changes within the trading framework, it should trigger a review of the adequacy of the BCP solution in place.

It's really important to keep the dialogue open, as this will support familiarity across teams and identification of any factors that might need to be considered. It is very much a partnership, so it's important to keep that continuous dialogue and trust in place.